Responding to a request from Mayor Kenney, the luxury housing developer that reneged on a commitment to include affordable units at One Water Street has agreed to a settlement that channels $3.75 million into Philadelphia's Housing Trust Fund, according to Karen Guss, an administration spokeswoman.

The deal, brokered late this week by what Guss called "senior administration officials," means that the developer, PMC Property Group, will be able to immediately start moving tenants into the sleek, contemporary 16-story apartment house on the Delaware waterfront.

The city will use PMC's trust-fund payment to construct affordable housing in another location. The zoning code allows developers to make such payments instead of providing the units In their buildings.

The opening of One Water Street was put on hold in early June after PMC asked to be relieved of its affordable-housing obligation.

The problem was that PMC had already been granted a substantial zoning bonus - one that allowed the company to add five extra stories and 30 full-priced units to the building - in exchange for setting aside 25 apartments at subsidized rents. The building now has 250 units.

Initially, the city told PMC that it could legalize the building's extra height by submitting a new zoning application. Under that process, the developer could have substituted other amenities, such as retail space and public art, for the 25 affordable units. But after an outcry from affordable-housing advocates who complained the arrangement violated the spirit of the law, the administration decided to change course, Guss said.

"No one in the administration was happy with the way it was going," she said. "The mayor was [angry]. Folks in the administration called the developer and said, 'We want you to do the affordable housing. And if you're not going to do it, then we want you to pay into the fund.' "

PMC's actions particularly disheartened housing advocates because it was the first developer to take advantage of the new inclusionary housing provision in the zoning code. Developers are allowed extra density in exchange for setting aside a fixed number of subsidized units - or contributing a sum of equal value to the housing trust fund.

Another developer that is building a luxury tower at Second and Race Streets is also taking advantage of the affordable-housing bonus.

In an email circulated late Friday, the city's director of planning and development, Anne Fadullon, praised the $3.75 million settlement, and said the payment would more than compensate for the loss of 25 subsidized units at One Water Street.

That figure, she wrote, was recommended by the Office of Housing and Community Development. She said the agency arrived at the payment after calculating the value of the 25 subsidized units and the cost to replicate them in another location.

Members of the city's affordable housing community had initially estimated that the 25 units were worth $5 million. Despite the difference, the Philadelphia Association of Community Development Corporations, an advocate for affordable housing, applauded the deal.

"This announcement is not only an example of the Kenney administration holding a developer accountable to the zoning code, but also to equitable development in the interest of low- and moderate-income Philadelphians," the group wrote in a statement distributed about 45 minutes after Fadullon's email went out.

Officials at PMC could not be reached for comment.

Since their substitution proposal became public, they have declined to discuss the reasons for their change of heart.

PMC's decision to pay into the housing trust fund represents an abrupt about-face in its strategy.

Just two weeks ago, it filed the paperwork to start a new zoning process.

In its application, it said it would compensate for the 25 units by incorporating one retail space, a work of public art, and energy-saving measures into One Water Street, at 250 N. Columbus Blvd. The developer even paid a substantial sum to have its application fast-tracked.

Coincidentally, those substitutions were approved this week by a plan examiner at the Department of Licenses and Inspections, Guss said. That was only the beginning of a process, however, that would have included public appearances before several city boards.

"We all knew that what they were doing was lawful," she explained. "But we told them we didn't like it."

One Water Street is the first apartment building constructed on the Delaware waterfront since the city completed a master plan for the area.

PMC has been commanding substantial rents at One Water Street, starting at $1,795 for a one-bedroom unit and going up to $5,525 for a three-bedroom. The subsidized units would have rented for half that figure.

The Housing Trust Fund was created in 2005 as a way of pooling funds to repair dilapidated houses and build new subsidized units. Nearly 1,500 affordable units have been built over the last decade, Fadullon wrote.



Note: This story and headline were updated for clarity.