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A few decades ago, it was not uncommon for nonprofit housing developers to partner with investors to fund their projects. But one of the city’s oldest affordable housing managers never expected that this kind of arrangement could ultimately push them out of the affordable housing business.

With financial support from 66 individual investors, Phipps Houses built Henry Phipps Plaza West 28 years ago as part of the state’s Mitchell-Lama program, which provide low-interest loans and tax breaks in exchange for developing low- and middle-income housing. Since then, the 894-apartment complex on Manhattan’s Second Avenue between 26th and 29th streets has been home to a mix of working-class families and senior citizens.

Nothing lasts forever, though, and in the case of Mitchell-Lama buildings, the state only required the developer to keep the rents low for 20 years. At that point, landlords can opt to “buy out” of the program and get back the bulk of their profits annually–the state only allows investors to reap 6 percent of the profits from rents for as long as they are in Mitchell-Lama, putting the rest in escrow accounts–and raise the rents to market rate. More than 30 developers reportedly have chosen to do that over the last 15 years, and Phipps Houses seems to be next in line–much to its dismay.

In 1989, seven years before the Phipps Plaza West contract came up for renewal, Phipps’ investors told the nonprofit developer they wanted the buildings out of Mitchell-Lama. Phipps resisted. A decade later, the group found itself in court, sued by its investors.

At that point, the future did not look good. “I knew we would never change their minds,” said Adam Weinstein, president of Phipps Houses. But, last month, after three years of negotiating, a settlement was reached: As early as this summer, the building will leave Mitchell-Lama, but tenants who qualify for Section 8 vouchers can start using them to pay their rent immediately. Those subsidies require the tenant to pay 30 percent of their income in rent, while the feds pay the landlord the rest. And because the building has a mortgage subsidy from the federal Department of Housing and Urban Development, Phipps’ tenants will not have to wait on the city’s 100,000-household-long waitlist for a voucher.

“Management will assist households to find ways they can qualify,” Weinstein told City Limits last week. “We’re very capable at administering rent subsidies.” He estimates between 70 and 80 percent of the tenants at Phipps Plaza will be found eligible.

The tenants are not as confident, however. When the owners of Waterside, an ex-Mitchell Lama building on the East River, made that same arrangement, only 20 percent of the residents qualified for the vouchers. (Under federal law, eligible applicants must make 50 percent of the area’s median income.) For the rest, rent hikes were capped at 9 percent a year. Phipps tenants are therefore looking for help elsewhere.

“It’s a terrible thing,” said Pamela Gould, a 15-year resident who organizes donor drives for the New York Blood Center. Should her $594-a-month studio home become unaffordable for her, she said, she will look for a cheaper place in the suburbs.

Some state legislators are also trying to do what they can, given that there are 260 Mitchell-Lama buildings in the city and 422 statewide. Assemblymen Steve Sanders, Edward Sullivan and Scott Stringer have drafted bills to extend the buyout limitation period or to extend rent stabilization laws to Mitchell-Lamas occupied after 1973.

But even that does not look good given opposition from the Republican leadership. Said Sanders, “I don’t see any program in the future to replace Mitchell-Lama.”