The development arm of the Indianapolis Housing Agency has closed on financing and started construction of an $11.5 million, 61-unit apartment project at Massachusetts Avenue and East and North streets.

It's the first of two phases of housing and retail space known as Millikan on Mass that Insight Development plans to build on ground surrounding the Barton Tower Apartments. But the fate of the second phase is up in the air because its financing had been tied to a project that the team of Insight and Flaherty & Collins Properties had hoped to develop across Mass Ave at the site of the Indianapolis Fire Department headquarters.

The city announced Oct. 24 that it had selected the team of J.C. Hart Co., Strongbox Commercial and Schmidt Associates architects to build a $43 million, mixed use project with 235 apartments on the fire department site.

Insight President Bruce Baird said his development team is beginning the process of evaluating its options for phase two of the development. That project, with 68 apartments and 9,000 square feet of retail space, would line Massachusetts Avenue and East Michigan Street across the street from the Athenaeum.

Baird said it's possible the project, which already has received city design approval, will proceed even though the project across the street was awarded to the Hart/Strongbox team. He said Insight/Flaherty is only now beginning to focus on phase two after closing phase one financing last week and beginning construction Nov. 12.

Phase one, which includes 5,000 square feet of street-front retail, is financed almost entirely from the sale of rental housing tax credits awarded to Insight by the state last March. The credits are being syndicated by locally based City Real Estate Advisors and are being purchased by Huntington Bank and Fifth Third Bank. The construction lender is Merchants Bank of Indiana, with participation by First Merchants Bank.

The use of rental housing tax credits places limits on the income levels of those who occupy the units. More than half of the 61 units will be leased to people with household incomes between $23,000 and $40,000 a year. The balance will have even tighter income restrictions.

Baird said the five-story brick structure, most of which will front East Street, is scheduled to be ready for tenants in December 2013. Though work has started, a formal groundbreaking is expected to happen early next month. The design, by a partnership of the architecture firms Ratio and A2S04, preserves surface parking used by residents of the 21-story, 246-unit Barton Tower, a 1967 building where the Indianapolis Housing Agency recently completed $8 million in improvements, including new mechanical systems and cosmetic upgrades.

Baird said the Barton, which is open to seniors and the disabled, lost tenants during the renovation but is now back up to about 88 percent occupancy.