Just a short distance east of downtown Buffalo, a few blocks away from neighborhoods pocked with vacant lots and boarded-up buildings, you'll find Sycamore Village.

It's an upscale development in one of the poorest parts of the city, featuring houses that

receive unprecedented subsidies to go with unprecedented price tags.

Looking for a good deal on a new house?

In Sycamore Village, a $225,000 Colonial goes for $176,000.

Those who qualify as low-and-moderate income under federal guidelines (that's a maximum

income of $50,800 for a family of four), can get a $215,000 model for just $90,000.

Worried about property taxes?

For the first 10 years, they are discounted.

It's another perk for agreeing to live in this experimental community — a high-end

East Side development built on a former industrial site.

Photo gallery: A virtual tour of a Sycamore Village house

Related: Sycamore residents devoted to East Side revitalization

Web only: Developers critical of city regulations calling for soil remediation

And there's more. Before City Hall built the 15 homes that now make up Sycamore Village, it

spent $1 million in state funds to clean up the property and another $1 million in city funds

on sewer and water lines and other amenities.

But those costs aren't folded into the price tag. Nonetheless, when calculating the full

development cost of these houses, these environmental and public works expenses bring the

amount the city paid for each Sycamore Village home to as much as $350,000, according to

Buffalo News calculations.

Some say this is the cost of rebuilding an inner-city neighborhood.

"Trying to take a deteriorated part of the city and turn it into a successful

mixed-income neighborhood — that does not happen without subsidies," said Janet Penksa,

the city's commissioner of finance, who is a member of the Buffalo Urban Renewal Agency.

Critics don't dispute Penksa's rationale, but say Sycamore Village takes her good

intentions a bit too far.

"It's absurd," said Steven H. Polowitz, an attorney who has worked with various housing

organizations in Buffalo. "How do you justify these kinds of subsidies when you look at the

need out there in the neighborhoods for all the existing people whose homes need work who

don't get a dime?"

The News analyzed subsidized housing in Buffalo as part of its review of how the city is

spending federal money distributed by the Buffalo Urban Renewal Agency.

Traditionally, subsidized housing in Buffalo meant low-to-moderate-income homeowners got

$20,000 to $25,000 in federal funds from the city to help purchase a home built by private

developers. Ten years ago, for example, the average subsidized home cost $93,400. With a

$22,000 federal subsidy, the buyer paid about $71,400.

But today, subsidized houses in Buffalo — and not just in Sycamore Village —

cost upwards of $200,000 each to build. City property values are not keeping up with these

rising housing costs, so subsidies now go to developers as well as homeowners. The combined

subsidies total as much as $100,000 in order to keep the average sale price at $80,000 to

$90,000, The News found.

Private companies are no longer involved in developing these homes. Instead, subsidized

housing in Buffalo is exclusively the domain of nonprofit organizations, including City Hall.

The federal government now provides full construction funding as well as subsidies as long as

home buyers qualify as low or moderate income.

That's generally the case with 50 subsidized homes that Belmont Shelter Housing Corp.

developed in the Hickory-Kane-Kamp Road area at the City of Buffalo's request. The homes cost,

on average, $190,000 each to build, with the largest houses in the group costing as much as

$200,000 for construction, soft costs, subsidies and soil remediation.

The houses sell for an average $82,000 after subsidies.

A similar pricing structure exists with 25 homes being built by Bethel Community

Development Corp., headed by the Rev. Richard A. Stenhouse, and three houses being built by

True Community Development Corp., headed by the Rev. Darius Pridgen.

Pridgen's group was recently awarded more than $724,000 in HUD money for three homes on

Woodlawn Avenue, near Pridgen's church. That's $241,000 each for houses that will sell for

$80,000 to $100,000 each.

With the Belmont Shelter, Bethel Community and True Community programs, these homes are

designated for low-and-moderate-income home buyers. Also under federal regulations, proceeds

from the sale of these homes must be used on future housing projects.

Those also are the rules for the city's most highly subsidized houses in Sycamore Village,

which City Hall is developing.

Sycamore Village

The four Sycamore Village homes designed for low-and-moderate-income buyers are scattered

among the other 11 houses in the village project, which are sold without regard to income

limits.

The four low-to-moderate-income homes cost a total of about $860,000 to develop and build

— or $215,000 each, excluding environmental cleanup costs. They have $150,000 price

tags, but each homeowner gets a $60,000 subsidy, meaning the new homeowner pays $90,000. That

still leaves a gap of about $64,000 per home, which is considered the developer's subsidy.

The federal government picks up the cost of these homeowner and developer subsidies, which

totaled about $500,000 for the four houses, or $124,000 per house.

The 11 larger Sycamore Village homes the city is building are not federally funded. They

are designed for the relatively well-to-do. But they still receive a subsidy — which the

city picks up.

These homes cost about $225,000 to develop and build, and sell for an average $205,000,

although buyers pay, on average, $176,000. That's because the city gives each homeowner, on

average, a $29,000 subsidy. The remaining $20,000 gap is picked up by the city also as a

developer subsidy.

The city's total cost to subsidize the 11 houses is, on average, $49,000 per house, or

$536,000 for the 11 homes.

The funds to pay for the subsidies come primarily from the sale of a city-owned parking

ramp, said Penksa, city finance commissioner and Urban Renewal Agency board member. No federal

antipoverty money was used for these 11 "market rate" houses, Penksa said.

Since being put on the market in November 2008, the city has sold all of the 11

market-rate homes that were built, the last two selling in the past two months. Three of the

four highly subsidized ones are also sold, according to Keith L. Barnes, the realty agent

working with the city to sell Sycamore Village.

"From the perspective of bringing new life into a neighborhood, the project has been

clearly successful," Penksa said. "There was nothing there, and now there is development."

Peter K. Cutler, a spokesman for Mayor Byron W. Brown, predicted that Buffalo's subsidized

housing will prove to be a good investment.

"I think it's reasonable to expect that as continued investments are made in the community,

we will get to that point [where the homes are worth their construction price.]," he said.

Others are skeptical.

"Look at how many homes they have built in the area already," said attorney Polowitz,

referring to the hundreds of less-costly subsidized homes built in the surrounding area over

the past two decades. "Why do they think by building 15 to 20 more homes at that outrageous

expense that we will have different result?"

For now, Sycamore Village is on hold.

Sycamore Village was initially envisioned as a 24-unit development. With 15 homes already

built in Phases 1 and 2 of the development, that leaves nine more yet to be built.

Before Buffalo decides if it will build those nine houses, the city wants to do a market

analysis, Penksa said.

"There are no plans to proceed with Phase 3," she said. "The next step is to evaluate the

project. The city is committed to continuing development in the Sycamore Village neighborhood,

but not necessarily the planned Phase 3. The real estate market and economy have changed

dramatically since Sycamore Village. We are going to do a market analysis, and like any

development, make sure it makes sense in the short and long term."

In the beginning

Sycamore Village wasn't always intended to be as expensive as it became.

Back in 2002, during the Masiello administration, city officials hired M.J. Peterson to

build homes on the Sycamore Village site that would be more typical of subsidized housing in

Buffalo.

But while Peterson was building three houses, the Masiello administration realized that the

land where the houses were built on was contaminated with heavy metals.

Eventually, at the beginning of the Brown administration, the city paid to demolish the

houses and remediate the land, a process that cost well over $1 million, recalled Timothy E.

Wanamaker, the former city housing chief now working in California.

When the city was ready to rebuild, Wanamaker decided to test the waters and see if the

Sycamore Street area was ready for upscale housing, in some cases including Corian

countertops, ceramic tile floors, fireplaces, central air conditioning and whirlpool tubs.

The highly subsidized houses in Sycamore Village are somewhat smaller than the more

expensive ones — 1,300 to 1,400 square feet vs. 1,700 to 1,900 square feet. The highly

subsidized homes have one-car garages rather than two, fewer high-end amenities and no

whirlpool or Corian counters.

Nonetheless, the development was designed, Wanamaker said, so that you can't tell the

difference between the federally funded and the market rate homes. That's important, he and

other planners say, to maintain the value of all the houses.

Wanamaker, who had a street in the development — Sydni Lane — named for his

daughter, Sydni, added that it's important when redeveloping in urban areas to provide homes

for people of varying incomes, not just low-income, and to provide an alternative for people

who might otherwise move to the suburbs.

At the same time, he said, you don't want to create a development on the East Side only for

the higher income. That would become a gated community, he said .

Size a factor

Wanamaker left Buffalo city government before the project came to fruition, and the prices

on the houses were set. But other development officials say they aren't surprised by the level

of subsidies required in today's market.

Part of the cost reflects the sizes of the homes — many are several hundred square

feet bigger than the ones built in the city years ago.

More significant is the cost surrounding the city's decision to require clean fill used in

any project involving city property, hoping to avoid environmental problems. Most recent

estimates peg the cost at $30,000 to $40,000 in soil remediation costs per house.

But the bigger issue seems to be that property values in Buffalo — particularly on

the East Side — haven't kept up with the increasing cost of construction in recent

years, making it hard to follow subsidy formulas of the past, according to development

officials.

Often the appraised price of the house, as established by the bank, does not equal the cost

to build the house, especially when property acquisition and all soft costs are included.

What's more, given the median income of the area, federal regulations effectively limit the

price a subsidized home can be sold for to $150,000.

So in addition to the subsidy the buyer receives, a subsidy also goes to the developer, to

bridge the gap between the home's selling price and construction cost.

That's not the case in more-affluent communities such as East Amherst but holds true in

Buffalo and to a lesser extent in some of the city's older suburbs, including Cheektowaga,

according to development officials.

Build or rehab?

Given the high cost of new construction, development officials, including Wanamaker, said

government needs to consider whether it makes sense to build new homes in Buffalo or rehab

existing ones.

Generally, it costs about $100,000 to acquire and rehab a house that then sells for no

more than $60,000, said Bryan M. Cacciotti, executive director of HomeFront Inc. a nonprofit

housing agency in Buffalo dedicated to housing rehabilitation.

But there have been instances, he said, where costs have reached as high as $200,000.

In those cases, HomeFront felt restoring a few key houses that needed extensive rehab would

have a positive domino effect on the neighborhood.

Dennis M. Penman, a home builder who is the current head of the city's economic agency, the

Buffalo Economic Development Agency, said rehab doesn't always make sense with larger East

Side homes.

Given the need to remove lead and asbestos from houses, and the costs associated with

providing aluminum siding, plumbing and other basics, it could cost as much or more to

rehabilitate as to build a new, smaller house, Penman said. And the smaller, newly built homes

are more affordable to maintain, given such factors as heating costs, he said.

Nonetheless, Penman agreed with Cacciotti and others who said a combination of new builds

and rehabilitation might be the answer to revitalizing a community while keeping costs in

mind.

"When you do development or neighborhood revitalization, you have to have so many tools in

your toolbox," Cacciotti said. "You can't just look at one activity and expect a neighborhood

to come back."

Buffalo News reporter Patrick Lakamp contributed to this report.

sschulman@buffnews.com and plakamp@buffnews.comnull