Planners OK Proposal for the Headlands : Development: The scaled-down plan to build 394 homes and a 400-room hotel must still get the approval of the Dana Point City Council and the California Coastal Commission.

A controversial $800-million resort proposed for one of the county’s last large undeveloped coastal properties has won critical approval from the city Planning Commission.

After seven months of negotiations, the commission voted 3 to 2 Tuesday night to recommend that the City Council approve the plan for 394 homes and a 400-room hotel complex to be built on the Headlands, a 121-acre property overlooking Dana Point Harbor.

The proposal--called the Dana Point Headlands Specific Plan--is a scaled-down version of a plan approved by the county in 1981 that called for 800 homes and two hotels. Dana Point was named for this bluff-top property that has been the focus of several resort plans dating back to the 1920s.

“I think we have an excellent project now,” said Commissioner Carlos Olvera, an engineer for Southern California Edison. “There have been many projects designed for that location, but by far this is the least dense and the least obtrusive to the community.”

The proposal must still pass the council, where it is certain to meet resistance from community groups that have urged city officials to keep the pristine Headlands free of development. The council’s first public hearing on the project is tentatively scheduled for January.

“If this project goes through the way it is now, it will have a tremendous negative impact on the city,” said Ed Gallagher, a volunteer with Save the Headlands. “Once the developer is gone, the townspeople will be left with the liability for the bluffs, the traffic and crime. So far, the project has not tried to compensate the negatives we will have to live with forever.”

Commissioners Robert F. Nichols Jr. and Lynn Dawson voted against the plan, saying they liked the overall project, but object to its density, despite the reductions.

“The consensus of the people who have spoken at the meetings seemed to indicate that the one primary thing was their concern about the density . . . both the size of the hotel and the number of homes,” said Nichols, an attorney and director of Mariner’s Bank. “I voted against it because of the density issue, not because of the project itself, which I think has been refined . . . as best as it can be.”

The project includes nearly 13 acres of commercial development, three parks, the dedication of a popular surfing beach to the public, and a series of walking and biking trails. The centerpiece of the resort would be the hotel, comprising a 250-room main building with 150 bungalows called casitas.

The commission also recommended that the council certify the project’s environmental impact report.

Since the 1940s, the Headlands has been owned by Newport Beach-based M.H. Sherman Co. and Chandis Securities Co. Chandis Securities, a firm that oversees the financial holdings of the Chandler family, is a principal stockholder of Times Mirror Co., which publishes the Los Angeles Times.

M.H. Sherman Co. President Dan Daniels called the commission review “diligent, thoughtful and rigorous,” adding that he “recognized that the two commissioners who cast ‘no’ votes essentially favored the plan, but had concerns about density.”

If the council next approves the project, it would still have to go before the California Coastal Commission.