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From the outset, was challenged to make its project on Northeast Martin Luther King Jr. Boulevard pencil out.

The idea was to create a high-end living option for people making between 50 and 60 percent of the area median income, and to activate the building 鈥� as well as the neighborhood 鈥� with retail space. Compromises had to be made, but last month ground was broken on the five-story, 50-unit building at 3250 N.E. Martin Luther King Jr. Blvd.

鈥淚t was hard,鈥� said Sarah Stevenson, Innovative Housing‘s executive director. 鈥淭he architects and the contractors went to the drawing board and we cut what we could and we saved what we needed to and we generated a bit more equity than we were originally budgeting. We had a good investor who was interested in being here.鈥�

Early on, the $11.9 million project attracted St. Petersburg, Fla.-based equity investment company Raymond James, which Stevenson said was interested in entering the Portland market. Innovative Housing already had received $400,000 in state grants, but it also qualified for federal low-income tax credits, which it sold to Raymond James to raise $8.4 million.

The developer also received $975,000 in HOME program dollars and a $531,000 system development charge waiver from the city of Portland, and a $1.4 million loan from the Network for Oregon Affordable Housing.

Money was already being stretched when plans to include 1,400 square feet of ground-floor retail space 鈥� an early promise to the neighborhood 鈥� posed a new challenge.

鈥淭he (building’s) entire 48,000 square feet was subject to commercial prevailing wage,鈥� Stevenson said.

The Oregon Bureau of Labor and Industries has a higher prevailing wage for commercial products than for residential projects, Stevenson said. Even though the vast majority of the MLK project would be residential, BOLI dictated that the entire job be billed at the commercial rate 鈥� generating a cost approximately $600,000 more than planned.

That sent the design and building teams back to the drawing boards. A decision was made to focus on long-term durability.

鈥淥ne thing we maintained throughout the design of the project was all brick cladding, which, as you know, has a higher up-front cost but is seen as a long-term investment by the owner, not only for its aesthetic value but also its life span,鈥� said Ben White, an architect at , the project’s designer.

Similarly, the team decided to invest in high-performance wall assemblies to achieve energy savings. It also chose to leave concrete floors exposed rather than install floor finishes in some rooms, and use granite countertops instead of cheaper alternatives.

And at the last minute, co-general contractors and suggested switching from blown-in fiberglass insulation to a mineral wall system. It has a higher up-front cost, but it doesn’t require gypsum sheathing, so it’s cheaper over the long run.

Wells Fargo provided a $3.6 million construction loan for the project, which could qualify for a Leadership in Energy and Environmental Design silver rating. Katy Patricelli, senior vice president for Wells Fargo’s community lending and investments department, said the project made financial sense from the start.

鈥淭he location is also geographically very nice,鈥� she said. 鈥淚t’s close to public transportation. It has a public park (and) grocery stores (nearby). It has a lot of things that people who have less money can get to very quickly and easily so they won’t be isolated.鈥�

The building will have 42 one-bedroom apartments and eight two-bedroom units. It’s scheduled to be completed in August 2013. A planned second phase calls for constructing a second building nearby with two-, three- and four-bedroom units that also will cater to low-income families.

Stevenson said she is hoping that the first phase will be a kind of catalyst for more development along the northern stretch of Martin Luther King Jr. Boulevard. And as the neighborhood develops, she wants the new building to become an anchor.

鈥淎s things have changed and the neighborhood has gentrified, I think a lot of people have been displaced,鈥� she said. 鈥淲e’re hoping we can create a place where people from the community can either come back to or find a place to stay.鈥�