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When financial troubles drove the Traveller's Inn motel chain into bankruptcy this spring, the City of Victoria took a calculated financial risk and bought two of the rundown properties in hopes of converting them into social housing.

On Wednesday, that gamble paid off to as both the provincial and federal governments came to the table with millions in funding for the project.

Oak-Bay Gordon Head MLA Ida Chong announced Wednesday that the province will put $2.5-million toward the city's $5.6-million purchase of the two motels, located at 120 Gorge Rd. East and 710 Queens Ave.

"The province is developing a range of affordable housing options, and when we develop these options it's important we don't lose sight of the existing rental stock," Ms. Chong said following a news conference in the parking lot of the decommissioned Gorge Road motel. "We can't allow them to be redeveloped into single-family dwellings when we would be converting them into 30 or 40 smaller units."

Shortly after the province's announcement, the federal government issued a statement trumpeting a $1.25-million grant to the Capital Regional District, money that officials said will also be used to help reduce the city's debt.

After receiving B.C. Supreme Court approval to buy the two properties this spring, Victoria City Council voted in July to fund the entire purchase from its capital reserves.

"It is risky for the city to be out there like that … but we have a very good working relationship with our provincial and federal partners," said Victoria Mayor Dean Fortin. "We had confidence they would have our backs."

The Queen's Avenue site will be converted into 36 studio apartments for low-income residents. It will be managed by the Victoria Cool Aid Society, which provides a range of social services for Victoria's street community.

The 70-unit Traveller's Inn on Gorge Road will be converted into 39 one-bedroom apartments for aboriginal people and operated by the Victoria Native Friendship Centre.

Friendship Centre executive director Bruce Parisian said his organization wants to move beyond the supportive housing model and create a "village" with the same social supports found in traditional first nations culture.

"We've always had that village concept historically," he said. "It's about a whole community supporting each other and being there for each other."

Residents will have access to a range of childcare, counselling, addiction and health services available at the Friendship Centre's headquarters less than two kilometres away, Mr. Parisian said.

However, the organization still needs to find between $2-million and $3-million to cover the cost of renovations. "It really hinges on the different funders coming to the table and it's going to take a while to resolve that," he said.

Special to the Globe and Mail

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