The Birmingham City Council on Tuesday approved a deal that would provide a $3.5 million forgivable loan to a nonprofit aiming to redevelop the former Graymont School to provide affordable housing for senior citizens.

The agreement allows the nonprofit group Veranda at Graymont School to lease the city-owned property at 300 8th Ave. W for 30 years at $1 per year.

Meghan Venable Thomas, the city’s director of community development, said the Graymont project will create 101 housing units for seniors.

The development is part of a $50 million grant Birmingham received last year from the U.S. Department of Housing and Urban Development’s Choice Neighborhood program. According to the department’s website, the program “leverages public and private dollars to support locally driven strategies that address struggling neighborhoods with distressed public or HUD-assisted housing.”

Birmingham officials plan to use the $50 million to build more than 1,000 subsidized, affordable and market-value homes to replace the 900 units of the Smithfield Court, the city’s oldest public housing site that was built in the 1930s with Works Progress Administration money.

Thomas said the Graymont project, estimated at a total cost of $27 million, represents the first phase of the Choice Neighborhoods plan. The $3.5 million loan was the gap-filler needed to make the project feasible for the developer, she said.

Cory Stallworth, senior deputy director of the city’s department of community development, told the council that Veranda at Graymont was formed by the Housing Authority of Birmingham District, the Atlanta and Washington, D.C.-based Rural Developers, and the Atlanta-based developer Integral Group.

Integral Group, along with Sloss Real Estate, developed Park Place Apartments, a mixed income housing development on 24th Street North.

Stallworth said the planned development at the former Graymont School will be available to senior citizens who make less than 80 percent of the area median income. For one person, that would be less than $30,000 a year, he said. Though he added that the property’s clientele will likely earn much less than that.

Graymont Elementary School was built in 1908 and was one of the first schools in the Birmingham district to be integrated. It was added to the National Historic Register in 2007.

Thomas said Veranda at Graymont will leverage historic tax credits for the development and work to keep the building’s facade as it was when first built.

The project is in the design and engineering phase now and planners hope to break ground in the fall, Thomas said.

“I know the residents of Smithfield — and College Hill, too — are excited about this project. It’s a really meaningful step in terms of the larger Choice Neighborhoods project as well,” said council President Darrell O’Quinn.