PEABODY — Richard Marchese is betting a massive bowling alley, arcade and sports lounge will jump-start his stalled Route 1 residential development. But neighbors are worried it will only add to headaches caused by the developer's decision to clear-cut a 21-acre forest near their homes.

The hole left in the landscape exposed the neighborhood behind the highway to a variety of problems, from noise and light to unimpeded storm runoff that has flooded backyards, neighbors have said.

Last fall, Marchese removed trees and brush off Winona Street, a perpendicular connector to Route 1, to make way for 14 new homes. He also cleared out adjoining land off Route 1 that he hopes will one day be home to a 49,500-square-foot family entertainment center.

The hole is still there, and Marchese this week told the City Council that it won't be filled anytime soon with the residential subdivision he planned.

"We're at a standstill," he said at a meeting on Thursday.

The sharp downturn in the housing market is to blame, Marchese said, and he can't secure financing. A bank will not give him a nickel until 50 percent of the project is presold, he said.

Meanwhile, Marchese is leasing commercial property in front of the land where he intended to put homes. Its development, and the new, neighborhood-buffering trees that would accompany it, hinge on the City Council approving a special permit and liquor license transfer to the Illinois-based Brunswick Corp.

Brunswick has 11 locations throughout the country, and the company wants to build a Brunswick Zone XL in the empty space. The nearly 50,000-square-foot complex would include a 36-lane bowling alley, a sports lounge with restaurant seating, an arcade and redemption store, pool tables, two floors of laser tag, and three banquet rooms.

But there is a problem. Many neighbors of the proposed facility do not want it built.

"We don't need any more traffic on Route 1 or Winona Street," said Nancy Kaminski of 11 Anderson St.

They also don't want another alcohol-serving establishment near the neighborhood and oppose the proposed 1 a.m. closing time.

The land next to the Brunswick Zone site is also contaminated by chlorinated solvents used by a machine shop that once operated there. The toxic solvents, which cleaned and degreased machinery, have leaked into bedrock and groundwater and forced the closure of a city well.

Kaminski, who choked up when she revealed she had lost two neighborhood friends, a married couple, to cancer, worried about what would happen when digging and blasting began to fix the site's uneven topography.

"Where is the contamination going to go?" she said.

"There is no expectation that the plume (of contamination) would be altered," said Jack Keilty, Marchese's lawyer.

The state Department of Environmental Protection has been monitoring the site for years, and any construction that could disrupt the contamination is subject to its review, he said. Riro Realty Corp., owner of 128 Newbury St., is responsible for the cleanup.

Ron Parsons of 1 Anderson St., a married father of two children, said the "decimation" of the acres of trees has "drastically begun to change our quality of life." He said he had little faith that Marchese would be able to improve the situation.

'Limited regards to his neighbors'

The developer has gotten off to a rocky start, which Planning Board Chairman John Creeden highlighted in a letter to the council.

"The applicant has shown minimal response to the neighbors' concerns," Creeden said. "The applicant has proven to act without proper planning and to conduct his work with limited regards to his neighbors. The project under construction has shown poor workmanship."

On Thursday, Marchese said he has tried to be as responsive as possible. He pointed out that he planted trees and installed a fence for three abutters. And his land, once mined for gravel used to build Logan Airport runways, is uneven and the trees had to be removed before work on grading the area could be done, he said.

Before Brunswick expressed interest, Marchese originally planned to open his own restaurant and sports lounge in the former home of Country Cue Billiards. He now wants to transform that space to accommodate a retail business.

According to the terms of his lease, Marchese can sell the land to Brunswick. A portion of the expected $3.3 million transaction will go toward the cleanup, Keilty said.

The council didn't vote on Thursday. It will take up the special permit again at its meeting on Aug. 14.

In the meantime, the council asked Marchese to address the Health Department's concerns about the contamination cleanup, the Police Department's concerns about traffic flow and Public Services' concerns about stormwater drainage. Councilor Michael Garabedian was also leery about alcohol being served in proximity to so many kid-friendly activities.

When Marchese's 14-home subdivision, called Winona Woods, was approved by the city in January 2007, neighbors welcomed it. They figured it meant they would be spared living next to a high-density cluster of condominiums.

Now, Kaminski doubts she will ever see the homes built.

"I don't think the development will ever happen," she said. "I don't think anyone is going to pay $550,000 for a home that backs up to a bowling alley."