HADLEY — A state panel is overturning a town Zoning Board of Appeals decision that rejected plans to convert a former Route 9 hotel into an affordable housing development, meaning the $13 million rehabilitation of the property can proceed.

The Housing Appeals Committee, in a Nov. 22 ruling, called the decision by the Zoning Board on March 20 “unreasonable and inconsistent with local needs” and that Valley Community Development, the nonprofit agency which owns the former Econo Lodge at 329 Russell St., should be issued a comprehensive permit for its plans to turn the hotel into 51 apartments for up to 63 low- and moderate-income individuals.

“We are thrilled about the decision from HAC given the incredible need for more affordable housing in our community,” Valley CDC Executive Director Alexis Breiteneicher wrote in an email.

Breiteneicher said having the zoning permit allows Valley CDC to apply for the necessary funding, though creating the permanent housing, situated near the Mountain Farms Mall and many stores and restaurants, is still a ways off, with construction possibly a year or two from beginning.

“We are so appreciative of the many boards and residents of Hadley who supported this development, and us, through the process,” Breiteneicher said, referring to support from both the Select Board and Planning Board.

The summary decision comes following an appeals process that required the municipal board to elaborate on its reasoning for denying issuing a comprehensive permit under the state’s Chapter 40B affordable housing law. At the meetings, there was discussion that Hadley is in “safe harbor” from the state’s Subsidized Housing Inventory, which requires cities and towns across Massachusetts to have at least 10% of their housing stock considered affordable. Communities that don’t meet the threshold can be required to approve projects under the Chapter 40B law, which allows developers to skirt local zoning rules.

In the case of Hadley, one of those zoning rules is a prohibition on multiple dwelling units on a property, with some exceptions, such as accessory apartments and 55-and-over housing, in certain districts. That meant Valley CDC was seeking a so-called friendly Chapter 40B comprehensive permit.

In its ruling, the state panel stated that the town’s Zoning Board had the burden of proof to show that local concerns outweighed the need for affordable housing in issuing a denial, but failed to do that: “It has not submitted any evidence to establish a valid local concern, much less one that outweighs the need for affordable housing. Rather, the evidence submitted by Valley demonstrates that the redevelopment of the Econo Lodge for an affordable housing development does not raise valid local concerns.”

ZBA’s stance

During the meetings last winter, members of the Zoning Board cited both support and opposition in the community, including a petition signed by those against the project. As an appointed board, members said a zoning decision of such consequence should be left to voters.

ZBA Chairman Andrew Bombardier said Tuesday that the board was instructed by the Select Board and other town officials to evaluate the application and do what members thought best for Hadley.

“We reached the conclusion that the project was not in the best interests of the town,” Bombardier said. “Town counsel said we were 100 percent within our rights to deny the application, based on the fact that we are above the 10 percent threshold mandated by the state.”

After the appeal was filed, though, Bombardier said the Select Board opted against paying legal fees to defend the board’s vote and also encouraged the Zoning Board of Appeals to reopen the hearing, which didn’t happen.

“As a result, the appeal has been granted on a technicality where the housing appeals committee did not even take into account that Hadley is above the 10 percent number,” Bombardier said, adding that various conditions that could have been set for the project are now lost.

In its argument to the state panel, Valley CDC indicated that it received support from the Select Board and later the Planning Board, both of whose members are elected by residents. Laura Baker, Valley’s real estate development director, told the state panel that the agency wouldn’t have sought to purchase the hotel property if the Select Board hadn’t signed off on a letter of support to the state’s Department of Housing and Community Development for project eligibility.

“Ms. Baker stated the project would not have been pursued nor would the property have been acquired without the Select Board’s support,” the summary decision states.

Valley CDC then purchased the three-story, 29,230-square-foot hotel from Hampshire Hospitality Group for $4.1 million using Community Economic Development Assistance Corp. funding.

Valley CDC also argued that the town’s Housing Production Plan calls for 11 new affordable units in the next year.

Following the rejection of the comprehensive permit, the Planning Board has continued to explore adopting Chapter 40R overlay zoning that would allow affordable housing developments by right. Such overlay zoning is being examined for the area of Route 9 encompassing the Econo Lodge, as well as for the Village Barn site closer to the Coolidge Bridge, where a 55-and-over development has been pitched.

Constructed in 2003, the hotel last fall housed transfer students at the University of Massachusetts,and since this spring the first floor has been used by Craig’s Doors: A Home Association Inc. to house some of its guests, on a temporary basis, with 24 hours a day, seven days a week staffing on site.

Breiteneicher said this use can continue for now. “We are still a year or two away from construction in a best-case scenario, which will allow us ample time to support our current tenant, Craig’s Doors and their guests, in securing alternative space,” Breiteneicher said.

Development plans show studio apartments of 257 square feet and one-bedroom units of 514 square feet. Thirty-three apartments would be reserved for extremely low-income people, 25 of them for those currently unhoused, and 17 apartments would be reserved for moderate and working-wage, or low-wage, workers.

Middle-tier rents would be set at $988 a month for efficiencies, including all utilities, such as heat, air conditioning, electricity and Wi-Fi, and $1,059 a month for one-bedrooms. The operating budget will be based on rents and subsidies.

Based on the $13 million renovation cost, or $267,000 per unit, Breiteneicher notes this is much less than the statewide average of more than $500,000 per unit to develop affordable housing.

“Being able to reuse the former hotel, which is in excellent condition, greatly eases the costs associated with the conversion to affordable housing,” Breiteneicher said.

Scott Merzbach can be reached at smerzbach@gazettenet.com.