Houston—Living in an abandoned, haunted hospital atop a pre-Civil War cemetery is something that, for most people, is the stuff nightmares are made of. But for the artists living in the renovated Jefferson Davis Hospital here and the residents in the surrounding neighborhood, it’s the stuff dreams are made of.

Now known as Elder Street Artist Lofts, the historic Houston structure has given 27 low-income households affordable homes and is providing a spark for revitalization of the poverty-stricken neighborhood surrounding it.

“It had been listed as a paranormal site on spooky hobby Web sites; kids would want to get into the abandoned hospital building and run around,” said John Gross, a project manager and developer with Artspace Projects, Inc., a Minnesota-based artists’ housing nonprofit that developed the project in partnership with a local nonprofit, Avenue Community Development Corp.

Construction crews, who worked carefully with archeologists to make sure they didn’t disturb any coffins when laying pipes and power lines for the newly restored 34-unit apartment building, didn’t stir up any ghosts, said Gross. But the renovation did stir up a wave of community spirit in one of the city’s most neglected areas. Two-thirds of the residents in the First Ward neighborhood, just northwest of Houston’s downtown, earn less than 60 percent of the area median income (AMI), so affordable housing is desperately needed in the area.

Now artists ranging from jewelers to painters to blues and jazz musicians displaced from New Orleans by Hurricane Katrina fill the once-dilapidated building with creative energy. And that energy has spilled out into the surrounding area, where more residents are renovating their homes, developers are initiating new construction, and affordable-housing advocates are starting additional adaptive reuse projects, according to Artspace officials.

“There’s been a noticeable change in the homes,” said Artspace President L. Kelley Lindquist. “Owners are taking more pride in their community.”

Because there was such a need for affordable housing and many neighbors wanted to see the old hospital renovated, the community welcomed the redevelopment proposal, he said, adding that the project’s biggest challenge was financing.

City, county, and state funds—including a $200,000 grant from the Environmental Protection Agency—didn’t provide enough money to finance the deal, according to Lindquist. “There was still quite a large gap,” he said.

In the end, Artspace raised more than $1.3 million from foundations and other donors to help cover project costs. The city contributed a $500,000 Community Development Block Grant, the county granted some funds, and a $900,000 construction bridge loan came from Amegy Bank of Texas. But the bulk of the financing was provided by almost $3.3 million of equity from the sale of both 9 percent low-income housing tax credits and historic tax credits syndicated through Apollo Housing Capital, LLC.

Rents in the renovated building, now known as Elder Street Artist Lofts, range from $270 to $877 a month. Seven of the units are market-rate, 14 are set aside for tenants earning up to 60 percent of AMI, and the rest are slated for those earning incomes up to 30, 40, and 50 percent of AMI. The units, completed in August 2005, are already fully leased, and were in such demand that there’s a 40-household waiting list. And where Houston’s affordable-housing need meets its artists’ niche, Artspace listens. The nonprofit is now considering taking on a second housing project in the city, Lindquist said.

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Elder Street Artist Lofts

Developer: Artspace Projects, Inc., in conjunction with Avenue Community Development Corp.

Number of units: 34; 27 are affordable

Unique feature: Renovation of an abandoned hospital into affordable artist lofts is spurring other new development in a low-income neighborhood.