MANKATO, MINN.—Pieces of concrete recently began to fall from the parapet of Orness Plaza—and that's just the beginning.

A seven-story tower clad in pebble-covered cement with the same inefficient windows that were installed before the building opened in 1970, Orness Plaza has little insulation to protect it from the brutal winters here.

But the 101 public housing units in the tower are still home for the very low-income elderly and disabled residents who would have nowhere else to live if the building closed.

“This thing is 100 percent occupied with a waiting list,” says Rick Goodeman, executive director of the Southwest Minnesota Housing Partnership (SWMHP).

Last year, the affordable housing developer helped to put the finishing touches on a $13 million plan to repair Orness Plaza, creating a model that could be used at hundreds of distressed public housing properties across the country. Then the financial crisis happened, and Orness Plaza went from being a potential model to another deal with an uncertain future.

SWMHP is looking for investors to buy the low-income housing tax credits (LIHTCs) at four affordable housing projects in Minnesota, including Orness Plaza. Until recently, the developer also had a fifth deal in the pipeline—a 30-unit project in Pipestone, Minn., a rural town whose largest employer, the Suzlon Rotor Co., just closed its doors. In April, SWMHP returned its reservation and shelved its plans.

Goodeman promises that even though deals like Pipestone's Redstone Townhomes may fold, Orness Plaza will eventually be built. “I'm sure this is going to happen,” he says. “I'm just not sure how.”

But it's hard to imagine a simple solution that would revive a plan so complicated and difficult to craft in the first place.

SWMHP and local officials planned to mix equity from LIHTCs with a private loan underwritten with federal public housing capital fund payments. They arranged to keep the stream of federal Sec. 9 public housing operating subsidy flowing to the property so that all the apartments at Orness could be preserved as public housing, even though the high-rise building and its improvements would be leased to a tax credit partnership.

Then, after four years of applications, Orness Plaza won a coveted $904,000 annual reservation of 9 percent competitive LIHTCs. “Nobody in Minnesota had ever received tax credits for public housing,” says Patti Ziegler, coordinator for the Economic Development Authorities of the town of Mankato and Blue Earth County.

The partners had planned to sell their reservation of LIHTCs for $8.2 million, or about $0.90 on the dollar. Then turmoil rocked the nation's financial markets. Today, syndicators float potential offers in the $0.60 range, and no investors have been willing to commit to the project at any price.

“I finally got the tax credits, and now I can't sell them,” says Ziegler.

Goodeman now spends much of his time modeling how various scenarios for affordable housing stimulus programs would affect Orness Plaza. For example, whether or not funds given in exchange for returned LIHTCs would come to the deal in the form of soft financing that does not need to be paid back will have a huge impact.

There's also a certain amount of waiting by the phone. One bank has been out of touch since December; however, an officer from Wells Fargo, which also once showed an interest in Orness Plaza, called recently to see the latest financials for the deal.

“We'll see what happens,” says Goodeman.