The city-owned portion of the Monterey Hotel, once a debacle, is finally transforming into an asset.

As recent progress revitalizes downtown Monterey, with apartments going in above Cibo Ristorante and the former T.A. Work building rising from the ashes, a project that has dogged the city for years is finally turning the corner.

Monterey first got involved in the Monterey Hotel in 2006, when its owner, Cambria-based PRI, LLC, approached the city for money to help finish an expansion. An $11-million loan from Rabobank wasn’t enough cash for PRI’s plan to add another 24 rooms.

The city agreed to loan PRI $3 million, mostly from the city’s Redevelopment Agency Housing funds, with the agreement PRI would use it to add 18 affordable housing units.

PRI ran out of funds with the project only 60 percent complete, and the city faced potentially losing the $2.5 million it had spent so far.

“There was a discussion at one point about whether the city should pursue project or walk away,” says Monterey Housing and Property Manager Rick Marvin.

But the city also may have had to repay the $3 million, so for the last several years, it has navigated a tricky legal process to keep the project alive. It obtained ownership of the parcel along Calle Principal, and the state awarded the city another $1.3 million to see the project through.

The city sent out a request for proposals this spring to solicit affordable housing developers to finish the 18 units. The city is almost ready to select a developer, and officials estimate the project will be complete in summer 2016.

The building’s layout is unusual: the affordable portion will share the hotel’s common areas and include six median-income, nine low-income and three very-low-income units.

For Coalition of Homeless Services Providers Executive Director Katherine Thoeni, every bit of affordable housing is a plus.

“Adding three [very-low-income] units is helpful,” she says, “but many, many more are needed.”