Hayes Commercial Group represented all parties in the deal.

The project, 535 E. Montecito Street, will consist of 40 two-and three-bedroom condos that would be sold at below-market rates, and eight at market rate.

The developers are hoping to serve Santa Barbara’s middle class “teachers, nurses” and other middle-income workers who might live in the Santa Ynez Valley and Ventura County, but cannot afford a buy a home in Santa Barbara.

Unlike most affordable housing projects, there are no requirements other than the homes be owner-occupied, and owners cannot re-sell them for more than a 2.5 percent increase annually in what they paid for the homes.

“We are excited about providing an affordable opportunity for the workers of Santa Barbara,” said Bill McReynolds, vice president of development for City Ventures. “We are hoping the price point will give them an opportunity to move closer to their jobs.”

The developers intend to put the 40 below-market units on the market for sale in the mid-400s, McReynolds said. The market rate units would go for about $550,000. The homes will range in size between 1,000 and 2,200 square feet.

City Ventures, which has projects in Ventura, Poway and Carlsbad, plans to build the condos in four stages.

Construction on the first building would begin in October, McReynolds said, and be completed by the 2nd quarter of 2011.

Even with the economy in shambles, McReynolds said he expects the homes to sell.

“We believe it will sell and more importantly, it has been priced appropriately in today’s economy,” he said. “The American Riviera is probably one of the best places to live in the United States.”

The approvals for the project were actually obtained a few years ago, when Bermant Development Company was the developer. The Bermants, however, facing financial challenges with its other housing projects, backed out of the project and sold its option to City Ventures.

Under the Bermants, the original proposal called for 98 homes at the 1.8 acre site.

“City Ventures stepped in to take it over,” said Robert Pearson, executive director of the city’s Housing Authority, which sold the project to the developers. “They totally redesigned what Bermant proposed.”

The city created a special “specific plan,” for the site, which is surrounded by mostly industrial and manufacturing businesses.

The Housing Authority purchased the property in 2003, thanks to a $3.5 million loan from the Santa Barbara Foundation.

“It is the soul of our middle class who wants to be homeowners here,” Pearson said.

Santa Barbara Mayor Helene Schneider said the housing project will help improve the overall area.

“This is an example of a good public-private partnership that focuses on the workforce housing that we desperately need in this city,” Schneider said. “This will be an attractive option for people who don’t want to commute from outside the area.”