Pond View Village, a heralded experiment at turning a former industrial site into 124 units of heavily subsidized affordable and market-rate housing, has been unable to sell condos in a glutted market and has defaulted on its main lender.

It teeters at the brink of foreclosure.

Cape Ann Housing Opportunity, the community-based nonprofit organization that last year finished 43 rental units and 41 condo units on the former LePage’s site it acquired on Essex Avenue in 2002, has not made mortgage payments since last year on what originally were $9.2 million in loans from a consortium of investors, including Bank of America.

The financing consortium is represented by the Massachusetts Housing Investment Corp., a private lender that specializes in the financing of affordable housing. Its president and chief financial officer, Joseph Flatley, told the Times yesterday that Cape Ann Housing Opportunity “is in default” of the $8.57 million loan balance.

Cape Ann Housing Opportunity has also failed to pay off its general contractor, Cutler Associates, which was unable to pay subcontractors. Cutler has sued the nonprofit for $192,948. A series of suits by subcontractors against Cutler and the nonprofit were also filed this spring.

Cape Ann Housing Opportunity missed the May 1 deadline for paying $40,888 of its $62,351 real estate tax bill to the city, according to a municipal lien certificate.

Christine Cousineau, the nonprofit’s executive director, told the Times that the Massachusetts Housing Investment Corp. “could have foreclosed in December.”

The financing consortium was joined in the project by a smaller group of local banks; the state, which, prodded by former Lt. Gov. Kerry Healey, made Pond View Village the poster child for the right way to create affordable housing; and numerous nonprofit groups and philanthropies, including the Paul and Phyllis Fireman Charitable Foundation.

At the groundbreaking 25 months ago, Healy said, “We came here to see how it’s done.”

Nancy Schwoyer, the retiring executive director of Wellspring House, who organized Cape Ann Housing Opportunity and bought the 20-acre LePage’s campus with a $2,745,000 loan from Massachusetts Housing Investment Corp., was out of the country yesterday and unavailable for comment.

Mayor John Bell, a champion of the project who directed $500,000 in federal community development block grant money to Cape Ann Housing Opportunity, confirmed its iffy status.

“Nobody wants to see this project fail,” said Bell. “It’s getting to the point where we are looking for a miracle.”

“They’ve got financial challenges,” said bank consultant David Sidon, speaking for the Gloucester Investment Corp., a syndicate of local banks that has given Cape Ann Housing Opportunity a $100,000 line of credit. “Property values have come down so much they’ve messed up the original business plan.”

The nonprofit, Cousineau said, was successful in renting the 43 subsidized units, including eight with federal Section 8 vouchers, but was depending on the sale of the 41 condo units to create the cash flow needed to keep the project on course.

More than a year after they went on the market, only eight units, those held below market rates, have been sold. The remaining 33, including 26 at market rates ranging from $229,000 to $359,000, have been taken off the market temporarily while Cape Ann Housing Opportunity and its lenders regroup with a new business plan.

But with the condo market in a deep slump, prospects in the foreseeable future are dim, Cousineau said. “They’re not making offers,” she said. “There’s so much inventory on the market, so much to compare to.”

Further inhibiting sales at Pond View Village was the acquisition in late December 2005 of its next-door neighbor, The Heights of Cape Ann, the city’s largest apartment complex with 272 units.

The buyer, Forest Management Properties, quickly converted 92 apartments to condos and flooded the market, then sued Cape Ann Housing Opportunity over the 57-foot height of the proposed final piece in its project, a 40-unit high-rise condo building not yet in construction that would have completed the project.

Cape Ann Housing Opportunity needed the proceeds from the sales of both the finished and unbuilt units to keep its mortgage and contract commitments.

James Murphy, attorney for North Shore Construction, which did site work for Cutler, the general contractor, said his payment for work stopped last fall. North Shore Construction has sued the nonprofit and Cutler for $91,673 in unpaid bills.

Murphy said Cape Ann Housing Opportunity stopped paying Cutler, which stopped paying its subcontractors. “We like working for Cutler, but we also like getting paid. It was a domino effect; now, we have to go back up the ladder,” Murphy said.

Cutler’s attorney, John Mazuy, said the Worcester-based contractor filed notice of unpaid bills last winter. “The subs couldn’t wait any longer, neither could we.” He said Cutler was extra patient because it was working for a nonprofit.

“The Heights didn’t help,” said Cousineau of the added real estate competition.

She also said that with its inventory of 33 finished units unsold, there was little hope Pond View Village’s 40-unit high-rise, closest to the commuter rail tracks, could be financed or built.

She called the proposed high-rise, with spectacular views of the Annisquam River, the project’s “crown jewel.”

Without its revenues and the sales from the 33 unsold condos, Cape Ann Housing Opportunity and its lenders face a pivotal decision as they struggle to find an innovative method of getting them sold and avoiding foreclosure.

Cousineau said borrowing was “frozen in January.”

The state, through the its Department of Housing and Community Development, has $5 million invested in Pond View Village, including $2 million in the unsold condos. According to spokesman Phil Hailer, the department has been urging Cape Ann Housing Opportunity to explore “work-force housing,” a concept “buzzing around the agency” since Gov. Deval Patrick took office in January.

It involves convincing companies to acquire or subsidize units for their employees.

Earlier this month, “work-force housing” was the subject of a meeting at Cape Ann Housing Opportunity, with lenders, city and state officials, and representatives of the area’s largest employers. Among those present were officials from Varian Semiconductor Equipment Associates, Cape Ann’s largest employer with a local work force of more than 1,000; Gorton’s; Gordon College, located in Wenham; and the National Oceanographic and Atmospheric Administration. Gordon College has already begun using work-force housing in Wenham.

Bell and Cousineau described the meeting as preliminary, but encouraging.

Cousineau said Massachusetts Housing Investment Corp., with outstanding loans of more than $9 million, holds the most notes and cards on Cape Ann Housing Opportunity, but has not given the nonprofit a repayment deadline.

But, she said, the lending corporation has taken partial control of the project. The consortium “will set the prices” in the future, she said, for the sale of the 33 condo units in the second phase of the project.

These have been on the market for about a year.

Flatley, CEO of the chief lender, said he expected the state to commit to additional subsidies that would help bring prices below market levels “to the $200,000 range. We’d be willing to chip in,” said Flatley, who said he believed Wellspring House “will raise some money.”

An additional infusion of subsidies would make the unsold units “affordable” and allow their use as workforce housing, Flatley said.

He said the project will “continue to be a partnership with Wellspring and CAHO.”

At the same time, Flatley noted, “We have a fiduciary responsibility to our investors. We have a significant role in decisions,” he added.

He said he expected the new financing and business plan to be ready “within a week to 10 days.”

Information from: www.gloucestertimes.com

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