Yesterday’s stunning defeat of Mayor Michael Bloomberg’s plans to redevelop Kingsbridge Armory—the first time the City Council has rejected a major administration land use initiative—left observers grasping to understand the new political realities at City Hall.

Real estate insiders said that many in their industry were looking to the Council’s Land Use decision on Kingsbridge as the key to the state of development in a city rocked by an economic crisis.

“It’s a whole new unchartered area,” said Jesse Maysr, a real estate lawyer who worked on the project. “We can assume the Bronx is closed for business. Is the rest of the city as well?”

The dispute over building a mall inside the nearly 100-year old Kingsbridge Armory centered around the issue of living wage: Retail unions and members of the Council’s Bronx delegation insisted that a project that received government subsidies should guarantee that tenants pay their employees a living wage; the Bloomberg administration and the developers, Related Companies, said such ideas were not feasible in the current economic climate, and that businesses would be unwilling to sign leases that mandated higher pay than other outlets a few blocks away.

The rejection of the proposal was a testament, Council insiders said, to a newly unified Bronx delegation in the Council that had been riven by internal disputes.

Up until recently, the Bronx delegation was led by Maria Baez, a close ally of deposed Bronx Democratic boss Jose Rivera and who was defeated in last year’s primary by Fernando Cabrera. Since her defeat, Baez has vanished from public life, reportedly dealing with a number of health issues. The new dean of the delegation, Annabel Palma, was much firmer in her opposition to the project than her predecessor. Baez’ absence, created a vacuum as the both sides tried to work out a deal, say several people with knowledge of the negotiations,

That vacuum was nearly filled by Ruben Diaz, Jr., the Bronx borough president and someone who many see as a possible citywide candidate in the near future. After the vote, he was careful not to qualify today’s action as a victory, but was emphatic that it did signal a new day in his long-divided borough.

“We’ve been working on unity,” Diaz said. “Stuff’s been said about us being dysfunctional, but before we change anyone’s perception, everyone should know as it pertains to governing and politics, the Bronx is coming together.”

Diaz singled out both Council Majority Leader Joel Rivera, who was once thought to be eyeing a run against Rivera for borough president, and Palma for commendation.

“I salute [Rivera] and Annabel Palma,” Diaz said. “I’m proud of the whole delegation.”

In previous land use disputes, Council Speaker Christine Quinn could be counted on broker a deal at the last minute. That Kingsbridge fell apart so soon after the mayor’s narrow re-election is indicative of the new labor influence over the City Council, according to Richard Lipsky, a lobbyist who fought the plan.

“The result emboldened people,” he said. “The folks who supported this living wage fight are by and large the same folks who vote in a Democratic primary.”

Meanwhile, opponents are crowing that they finally were able to stand up to a mayor that has seen few defeats over the past eight years.

Stuart Appelbaum, the president of the Retail Wholesale and Department Store Union, which helped organize the opposition to the plan, said his union would begin to call on the Administration to adopt a citywide policy on a living wage.

After the vote, Appelbaum was embraced on the Council floor by Rivera, whose presence lent an air of rare Bronx unity to the proceedings.

“You and I are going to turn the Bronx into a socialist republic,” Rivera told him with a laugh.

 -- with additional reporting by Andrew J. Hawkins