What does the name Trader Joe's conjure? Trendy young people looking for natural foods? Volvo-driving suburban moms swinging by for some organic milk and free-range chicken? Right.

But in San Francisco, the newest Trader Joe's (picture below) is in the middle of a low-income housing development. The store, which opened last October, is in the 341-unit North Beach Place apartments near Fisherman's Wharf. The $108 million redevelopment renovated 229 1950s-vintage public housing units and added 112 apartments. The project includes 291 low-income apartments plus 50 units for seniors.

Critical to getting the project approved was the addition of a 17,000-square foot retail component. It's a phenomenon being repeated across the country as developers look for ways to make their affordable housing projects more economically viable and more welcome in the community. The location provides a high-level of walk-in traffic from the development. But Trader Joe's also has 48 parking spaces, making it accessible to more affluent shoppers in the North Beach area. The project is across the street from a Safeway and the two stores help generate traffic for each other.

For the developer, making North Beach Place a mixed-use property helped bring a seven-year struggle to fruition. “The possibility of having a subsidized project approved is not that great,” says John Stewart, chairman of the board of John Stewart Co., which co-developed the project with BRIDGE Housing Corp. and Em Johnson Interest. “But if you're looking at a hybrid, your chances are better.”

The irony, he notes, is that the housing-poor San Francisco community was not buzzing with joy about the expansion of affordable living quarters, but about the introduction of the popular Trader Joe's franchise. “It's taken seven years to get this done and the big news in the local papers is that Trader Joe's is coming to town.” The project was financed through a combination of public and private funds. Citibank and Related Capital provide $56 million of interim financing, of which $23 million was converted to permanent financing. It also received $20 million in federal HOPE VI money and a federal tax credit of $55 million.

The mixed-use affordable housing concept has also shown up in New Orleans, where a Wal-Mart was put into the St. Thomas Public Housing Project. And on Harlem's 125th Street, a 42,000-square-foot Pathmark grocery store sits on the ground floor of Bradhurst Court, a $56 million 126-unit subsidized apartment complex.

“Retailers are very excited to take part because they are reaching an underserved market,” says Nicole Graham, an associate with CSG Advisors, which helps structure financing for affordable housing projects. “In New Orleans, we have a need for tax revenue and if it's possible to attain that revenue through sale or ground lease of land that is underutilized, that's to the benefit of everyone.”

As commercial components, the retailers cannot directly use federal funds or tax credits. But they typically pay below-market rent for locating in less desirable locations. In most cases the sales tax revenue generated at the stores in the projects help pay off the project's bonds. For example, on the Wal-Mart deal in New Orleans, a percentage of the sales tax generated at Wal-Mart will be used to pay the bonds for up to 20 years.