SALEM — A housing project that promised home ownership in the city's poorest neighborhood avoided possible collapse this week when a city board granted legal relief to the developer.

The Zoning Board of Appeals voted unanimously to allow the Salem Harbor Community Development Corp., a nonprofit agency, to market the 15 residences as rental apartments, rather than sell them as condominiums.

The CDC said it had been unable to sell the condos in the challenging real estate market and faced foreclosure on a $2.2 million bank construction loan.

The project had only one potential buyer, former City Councilor Lucy Corchado.

Palmer Cove Condominiums was built at 50 Palmer St. in The Point neighborhood, at the site of the former Keefe restaurant. The two- and three-bedroom condos were being marketed from about $142,000 to $190,000.

The only solution, the CDC told the board, is to refinance the project through low-income tax credits, which requires the residences to be rented as affordable apartments for at least the next 15 years.

"The alternative is this building is going into foreclosure," the agency's attorney, Bill Quinn, told the board.

The best option, he said, was for the CDC to retain ownership and manage the property.

While saying they are disappointed at the failure of this high-profile project, board members agreed there appeared to be few options.

"I don't think we have a choice," said member Beth Debski. "Foreclosure is not the answer here ..."

"Sometimes foreclosure can really be a benefit ..." said member Annie Harris. "I don't think so in this case."

As part of its decision, the board required the CDC to return in 15 years to review its options and explore the possibility of selling the apartments as condos.

"What is being preserved," said Appeals Board Chairwoman Robin Stein, "is an opportunity for home ownership."

The meeting at 120 Washington St., the City Hall annex, drew a standing-room-only crowd of more than 70 people, including many Point residents who accused the CDC of mismanagement and of breaking a promise.

There were also several representatives of low-income and affordable housing agencies in support of CDC's plan.