MAG Partners is turning an aging building on Eighth Avenue in Chelsea into a big new mixed-income development as part of a long-term ground lease deal with affordable housing cooperative Penn South.

The MaryAnne Gilmartin-led firm is planning to develop 335 Eighth Ave. into a mixed-use project with 200 units, as well as community space and a grocery store. The seven-story building would span about 200K SF, and 33% of the apartments would be set aside for low- and middle-income New Yorkers.

MAG, which is developing the building under the Affordable New York program, is set to start development next year and will continue to operate it once it is complete.

“It is an honor to partner with Penn South and join their long legacy of community-building in Chelsea,” Gilmartin said in a statement. "We are committed to building in a way that enhances this beautiful neighborhood and provides value to the co-op’s long-term sustainability."

The ground lease payments MAG pays will go toward Penn South’s work maintaining housing affordability for some 5,000 residents, according to the release. The current building has nearly 3,000 units and badly needed repairs, The Real Deal reports. Major retail tenants were expected to leave, which meant the apartments would have had a $500 monthly increase in apartment fees.

“We needed a solution that does not require our shareholders to pay major increases in monthly maintenance fees. The stores are supposed to subsidize the apartments, not the other way around,” Penn South Co-Op Board Ambur Nicosia said. “I am pleased that we found a partner who will help us achieve these key objectives through the development of a new building that is contextual and appropriate to the surroundings.”

The cost of housing has been a crisis for the city for years now, and the need has only become more urgent as the coronavirus pandemic has put people out of work and disproportionately affected certain communities in the city. While rents have come down in the last year, the reductions have mainly been at the upper end of the market.

Still, there is widespread disagreement on how best to spur more affordable housing in the city. The renewal of the Affordable New York program, a tax abatement, is still well over a year away — but there has been renewed push this year to repeal it as critics claim it is a giveaway to developers, while builders claim it is the only way mixed-income projects work financially.