The Portland Development Commission does not know exactly what the future holds for the Grove Hotel, the Old Town tenement building known for its very-low-income housing.

What happens to the building, located at 421 W. Burnside St., depends on the outcome of legal maneuvers between the PDC and opponents of the commission’s plans to expand the area and extend the lifespan of its River District Urban Renewal Area.

The legal wrangling prevents the PDC from using Tax Increment Financing – its main way of funding developments – on projects within the River District.

As proposed, the River District expansion would encompass more of Old Town/Chinatown than before, including the Grove Hotel, which the housing authority purchased a year ago to rehabilitate.

Controversially, the expansion would also include an area within the David Douglas School District, which is not contiguous to the rest of the River District.

A group of community members, including former members of the PDC, balked at the renewal area extension and filed an appeal with the Land Use Board of Appeals in July.

That has placed a roadblock in front of the commission, which wants to obtain the Grove Hotel’s property rights from the Housing Authority of Portland.

This is a significant setback for redevelopment within Old Town/Chinatown’s most visible corridor, according to Mike Andrews, Housing Authority of Portland’s director of development.

“The (River District) lawsuit has complicated things quite a bit,” he said. “Our plans have changed.”

If the PDC obtained the Grove Hotel, it would continue using the building for social services and very-low-income housing before eventually razing it for future development.

This month, the PDC had planned to have the housing authority transfer the building’s title over to the agency by forgiving a $3.5 million loan the development commission had given the housing authority to buy and renovate the property. That would have been in addition to PDC money that would have been used to cover the property’s appreciation since the housing authority bought and renovated the building.

The PDC does not know how long the legal challenges will last but is assuming that a land-use board ruling will not be made for another year or two.

Maintaining the city’s “low barrier, low income” housing is important to the PDC, said John Warner, senior project coordinator with the agency.

“If this (building) weren’t around, it would have remained a shell and these people wouldn’t have a place to live,” said Warner.

Still, the PDC plans to demolish the building eventually.

As planned, the city would relocate willing Grove Hotel residents to the Resource Access Center, a proposed six- to seven-story transitional housing project in Chinatown, when that building is completed.

“The (Resource Access Center) will be able to supply about 70 new rooms,” Warner said.

Even if the land-use board appeals get cleared up quickly, demolition of the Grove Hotel won’t happen for several more years, Warner added.

The housing authority’s renovations to the Grove Hotel have a five-year lifespan, and the development commission wants to keep a “continuity of services” in the area, such as low-income housing and programs including Housing Rapid Response.

With the question mark hanging over the project, there are now three options available to the development commission and the housing authority, depending on the outcome of the appeal.

The Housing Authority of Portland could transfer the property to the PDC, if the land-use board sides with the development commission, at which point the loan would be forgiven.

Or the housing authority could sell the building and transfer the net proceeds to the development commission, “but we don’t want to do that,” Andrews said.

Or the PDC board of commissioners could extend the timeframe for purchasing the property.

The development commission would like to obtain the property no later than February 2010.

“What we’ve realized is we have a role now that we didn’t anticipate,” Andrews said. “We’re still going to own this building for a while, which brings with it new roles and responsibilities that we have to perform.”