HOLYOKE — A major housing redevelopment project on Appleton Street has received a $600,000 state grant, which will serve as initial funding for the $55.3 million project’s second phase.

The Holyoke Redevelopment Authority is working with Winn Development to create 88 units of affordable housing for people 55 and older at the former Farr Alpaca Mills site.

The grant, awarded under the state’s Underutilized Properties Program, will help secure the remainder of Building 4 in preparation for the project’s second phase, according to Aaron Vega, the city’s planning and development director.

The former factory, which lines the canal near the police station, consists of six contiguous buildings running almost an entire block, Vega said. The one- and two-bedroom housing units are designed to be affordable to those making 30 to 80% of median income.

Construction began this summer after a seven-year process of securing financing, Vega said. Winn Development will receive a mix of historic tax credits and low-income tax credits, which the company can cash in after project completion, he said.

Matthew Robayna, Winn’s senior project director, said he expects the project’s first phase — renovation of the 2½ buildings closest to Appleton Street — to be complete by the spring of 2025.

The mill buildings have been abandoned for decades, and there are many holes in the roof.

“Water has been coming in for several years,” Robayna said. “It has really accelerated the deterioration inside.”

The buildings require roof and structural work, stabilization, and new columns, beams and decking, Robayna said.

“There’s a lot of work correcting structural elements,” he said.

Funding for Phase 1 is all in place. The recent grant will pay for roof work on Building 4 in preparation for Phase 2. The second phase is dependent on state funding through the Office of Housing and Livable Communities, Robayna said, which is a competitive process.

“Without the subsidies, these projects would never get done,” Vega said.

Among Winn Development’s other projects, the Boston company is continuing work on converting a 230,000-square-foot building at the Ludlow Mills Complex into 95 mixed-income apartments for older tenants.

James Pentland can be reached at jpentland@gazettenet.com