SANTA CRUZ, CALIF. - The Nuevo Sol Apartments haven’t always been a healthy place to live. Before workers finished a green rehab here in September, the tiny rental apartments had a reputation for illegal drugs and prostitution, despite their location just a few blocks from the beach.

“It was slum housing,” said Andy Leif, senior project manager for South County Housing Corp., the local nonprofit developer that purchased the old motel in 2005.

Residents now enjoy superior indoor air quality and low utility bills at the 14 rental apartments, among the first completed under Santa Cruz’s new green design ordinance based on the Leadership in Energy and Environmental Design standard created by the U.S. Green Building Council. South County Housing added extra insulation, Energy Star appliances, an energy-efficient radiant heating system that warms the floors of the apartments, and solar panels.

Nuevo Sol is also good for the environment because it recycled a battered motel, saving it from almost certain demolition and conserving building materials. South County Housing also conserved precious government subsidies by rescuing a stream of affordable housing funding from the brink of expiration to create the first permanent supportive-housing project for the chronically homeless in Santa Cruz.

Plans to build supportive housing here began in 2000 with an award of operating subsidy worth an estimated $1.1 million from the Department of Housing and Urban Development (HUD). The funds came through HUD’s McKinney-Vento acquisition-rehabilitation program for old single-room occupancy properties.

The award was made to a different developer to rehab a different building. But the deal fell through, and local officials had to struggle to find another building in the area that could qualify for the funding.

The property, then known as the Hidden Court Motel Apartments, was as close as the city had to the Skid Row-style lodging houses or welfare hotels the HUD program is designed for. Built in the 1930s, Hidden Court Motel’s rooms were as small as 325 square feet, with individual kitchenettes and bathrooms.

The old motel needed more than a gut rehabilitation. Eventually its two bungalow- style buildings had to be lifted up off the ground so their cracked foundations could be replaced.

It cost $3.96 million, or $283,000 per unit, to turn the motel into Nuevo Sol. That’s close to the average cost of development in Santa Cruz, said Leif.

The city and county partnered to provide $1.8 million in soft financing to Nuevo Sol. Local officials interviewed for this story believe the property will quickly pay back that investment in savings to the local services like shelters, emergency rooms, and jails used by many homeless people.

Another $1.5 million in soft financing came from the California Department of Housing and Community Development’s Multifamily Housing Program. All of this soft financing, along with other smaller loans and grants, means the project has very low monthly mortgage payments: just the debt service on a 10-year $405,000 California Housing Finance Agency Special Needs Financing loan with a 1 percent interest rate.

With operating subsidies including HUD Sec. 8 money and low utility costs thanks to Nuevo Sol’s green features, the old hotel should be in good financial shape for decades to come.