PLEASANTVILLE, N.J. - This down-on-its-luck stepsister town to neighboring Atlantic City has struggled economically for decades, languishing without a redevelopment plan or the ability to attract private investment.

But a $38 million project that includes two apartment buildings and retail space on a vacant Main Street block is expected to set the cornerstone for economic growth and expanded development in the Atlantic County city, according to Jacqueline Amado-Belton, economic development director for the City of Pleasantville.

"We feel like we have borne the brunt of a lot of issues that have spilled over from Atlantic City over the years," Amado-Belton said. "In terms of perception and other factors, it's been a struggle and a challenge to get to this point."

The Pleasantville City Center, expected to be completed by next summer, will add 135 apartments and 18,000 square feet of retail space and will be bordered by Main Street, Washington Avenue, Milan Avenue, and South Second Street.

Hurricane Sandy victims will have first crack at rental units, the majority of which will be priced so they are affordable to households whose incomes are 60 percent or less of the area's median income, officials said.

It is unclear what the prices of the one-, two-, and three-bedroom units will be when they are offered to the public, or precisely how many actually will be rented by Sandy victims.

Although construction began on the site several months ago, an official groundbreaking was held last week after the developer, RPM Development Group of Montclair, obtained the final phase of private financing for the project, officials said.

"This project is really pivotal for setting the tone for Pleasantville," Mayor Jesse Tweedle said. "It's something that has been in the works for years."

Situated in southeastern Atlantic County, Pleasantville, with a population of about 20,000, was once a thriving village of whalers and shellfishers that prospered because of its location as a gateway to Atlantic City. Its cemeteries stand as monuments to that prosperity, harboring elaborate - but weed-choked - grave markers and mausoleums that bear the names of locally renowned captains and boatmen like the Risleys, Smiths, and Lakes.

By the early 20th century, Main Street was lined with stores, banks, schools, and other public institutions, and the advent of regional train service, trolleys, and eventually buses created a regional passenger transit hub that continues to this day.

But the prosperity didn't last. And the town's economic decline followed that of many urban and suburban communities as transit patterns drastically changed in the years after World War II. Transit passengers became automobile drivers, bypassing places like Pleasantville on superhighways like the Atlantic City Expressway and the Garden State Parkway.

And with that trend, Pleasantville's downtown began a downward spiral as shoppers fled to malls and strip shopping centers.

But with more than 500 residents working in Atlantic City - although the numbers are dwindling because of the recent casino closures - and NJ Transit retaining Pleasantville as a regional transportation post, the concept of the city as a hub has remained, according to Kevin Kavanaugh, vice president of development for RPM.

"Pleasantville is a bus-based, transit-oriented place, so our mission was to create a transit- and pedestrian-friendly urban center," Kavanaugh said. "We think what this project will do is boost the foot traffic in an already walkable shopping district."

Besides private financing, the project is being underwritten by $7.3 million in Community Development Block Grant Disaster Recovery money through the Fund for Restoration of Multifamily Housing. The program provides for-profit and nonprofit housing developers an opportunity to secure zero-interest and low-interest loans to finance the development of affordable housing in the state's nine counties most affected by Hurricane Sandy.

The New Jersey Housing and Mortgage Finance Agency also provided a total of $3.75 million in permanent financing for the first and second phases of the project, and awarded the project competitive 9 percent federal low-income housing tax credits, which will generate about $25 million in private equity.

"This project is illustrative of collective efforts to bring back to the Pleasantville community, Atlantic County, and our state what was lost during the worst natural disaster in New Jersey history," state Department of Community Affairs Deputy Commissioner Melissa Orsen said.

Orsen said New Jersey's rental housing stock "took a serious body blow from Sandy" losing more than 15,000 rental units to major damage or destruction.

"As such, DCA is pleased to be able to use Sandy recovery funds to support worthwhile housing projects statewide such as Pleasantville City Center that help replenish the supply of affordable housing units that were destroyed or damaged by the storm."