Developers Wrenbridge and Buccleuch Property plan to demolish the former Argos building on Newborough and replace it with ground-floor retail units and, above, accommodation for 52 in-training NHS doctors and nurses from Scarborough Hospital and 150 university students.
Officers are recommending that councillors approve the planning application.
The plans have drawn criticism over their location, appearance, parking and viability.
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Many of the scheme’s opponents have called for an open public square instead, but a leading Scarborough councillor claimed that it is not viable.
Cllr Liz Colling branded the suggestion a "myth" at a full council meeting in November, as she said a public square would not generate the income necessary to repay the loan which will finance the development.
Scarborough Council is borrowing £22m from the Public Works Loan Board to finance the scheme, which was first devised in mid-2019.
The council had hoped to have the first cohort of students living in the new accommodation block by September 2020, but the drawn-out process of consultations, reviews, councillor rows, and the coronavirus pandemic has meant that the meeting to decide the building’s planning application was delayed until December 2021.
As part of the plans, the council is also looking to create a "public square" which could include demolishing some buildings in St Helen’s Square, which is adjacent to the Argos site.
Concerns have also been raised that a spiralling worldwide increase in the cost of building materials could cause the controversial project to run over budget.
Cllr Colling confirmed that if the cost of works would exceed the £22m loan, any decision to move ahead would have to come back to full council for approval.
At a meeting of the council’s Places and Futures Overview and Scrutiny Committee in November, councillors warned that the authority could be left in ownership of a building that it cannot afford to develop.
Scarborough Council is contractually obliged to purchase the building, which is believed would cost in the region of £1m, from Buccleuch Property Ltd once three conditions are met, one of which is receiving planning permission. Currently, none of the conditions has been met.
However, the council would not know the final cost of the proposed works until a viability report is conducted in early 2022, after the building’s plans have been drawn up and the purchase completed.
Councillors were told that there would be no money remaining to develop the site if it exceeds the £22m loan, and work would not progress at that stage.
Historic England said it welcomed the proposal and does not object on heritage grounds, but has suggested minor changes to the design, which will neighbour historic buildings in the conservation area.
Scarborough and District Civic Society objects to the plans, which it said are "overbearing" when comparing the proposed height to surrounding buildings.
Objections to "public square"
A separate plan will also appear before the council’s planning committee tomorrow to demolish No.1 St Helen’s Square, a four-storey building with a ground floor newsagents, the former public toilets and Nos. 48-49 Newborough, a former two-storey coffee shop, to create a "public square" opposite the Market Hall.
Historic England objects to the proposal. It said: "We do not feel that this should come at the expense of demolishing historic buildings that contribute to the character and appearance of this conservation area."
The conservation officer added the demolition of buildings on St Helen's Square would cause "significant harm".
The "public square" development is recommended for approval, subject to conditions.