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Neighbors unhappy with a planned condo-and-restaurant development at 1050 Valencia Street won a preliminary victory this week when a city appeals board voted Wednesday to reduce the size of the project and impose several conditions aimed at making it more compatible with the neighborhood.

After a nearly four-hour hearing the San Francisco Board of Appeals ruled unanimously in favor of two appellants who had objected to the project’s design and its short-and-long term impact on the Marsh Theater, which is directly next door.

Board members ruled that the building should be four stories rather than five. They also approved a number of conditions to be codified in the project’s building permit in relation to the Marsh Theater.

Cynthia Goldstein, executive director of the Board of Appeals, said that the decision is not yet final. A lengthy resolution drafted this week returns before the board on Jan. 15.

“The Board expressed its intent on how it wants this case decided,” Goldstein said. “There are still opportunities for the board to make changes.”

“The Board listened and got it,” said Stephen Williams, attorney for appellant Alicia Gamez, on Thursday. “They did the right thing.”

The other appellant was Stephanie Weisman, founder and artistic director of The Marsh Theater, a 12,000-square-foot theater next door to the project site. Thirty-five Marsh supporters spoke out at the hearing, expressing their concerns that the development would permanently disrupt the theater’s operations.

To prevent legal wranglings, if and when the project is built, condo buyers will be required to sign a disclosure agreement acknowledging they realize they are moving next door to a live performance venue.

The developer must also construct a soundproof wall between the project’s southern wall and the Marsh Theater to mitigate noise flow, the board ruled.

This week’s hearing was “our last-ditch effort” to prevent construction of the development as approved by the city, Williams said. He added that the project had been approved by the Planning Department and the Planning Commission in 2012, and most recently, the Board of Supervisors on Nov. 5.

Developer Mark Rutherford told Mission Local in November that the development would include two below-market rate units under the city’s affordable housing laws. Now that the project has been scaled back, it’s unclear whether the new plan will have affordable units as all buildings with more than 10 units must include.

“It’s not clear to us at this time how many units will be in the project now,” said Cynthia Goldstein, executive director of the Board of Appeals.

“We’re very pleased with the results,” said Liberty Hill Neighborhood Association member Peter Heinecke on Thursday morning.

In an email to fellow association members sent late Wednesday night, Heinecke described it as a “remarkable victory,” and in a phone interview today said, “the Liberty Hill Association is very pleased the Board listened to us and the Marsh and produced what we think is a very good result.”

Rutherford, in an email Thursday, said he “won’t know anything until the January 15 hearing,” and did not comment further on the decision.

Goldstein said that any party to the appeal has the right to request another hearing during a 10-day period after the Board’s findings undergo a second vote.

In the meantime, the appellants are celebrating.

“I have a feeling we’re not quite done with the process, I don’t think we’re at the end,” Weisman said on Thursday afternoon. “But it was a vote for the arts and the neighborhoods.”