The last undeveloped, city-owned property in downtown Monterey will finally be put to use, with a six-screen movie theater, low-to- moderate income housing, and retail shops.

The Osio Plaza project, named after the nearby Osio Rodriguez Adobe, breaks ground Thursday at the site next to Bay Books on Alvarado Street. Construction is expected to be completed next year by Barry Swenson Builders of San Jose. According to Jane Harder of the Old Monterey Business Association, this mixed-use building is part of the Custom House Urban Renewal Project that was begun in 1994.

The three-story project will be home to a Camera Cinemas theater, which will be their first venture outside of the San Jose area. Above the theater and shops will be 30 studio and one-bedroom apartments, to be rented to qualified applicants by a lottery system.

"There is a great need for affordable housing in Monterey County," says Bob Humel, the city''s Housing Department manager. "The city will still own the land. Barry Swenson Builders will own and rent the building. About two months before completion, we''ll announce a housing lottery screening." Humel says most of the units will be studios, with six one-bedrooms. Most will be fully furnished and rents are expected to range between $550-650.

Molly Erickson, who chairs the Monterey Planning Commission, says it was important to Monterey city officials during the design and approval stages of the project that the apartments "be livable, and people not be treated like second-class citizens. We wanted this to be conducive to long-term occupants, people who live and work downtown."

Mark Hansen, the project manager for Barry Swenson, says the $5 million Osio Plaza (originally called the C-21 Project, for its city block number) has been in the works for about two years, after going through the Planning Commission, the Architectural Review Board, and the Historical Preservation Society. "It was difficult to design because there''s so much happening there and it''s a small site." The 33,000- square-foot complex will sit on a 15,000- square-foot site. "To keep with the history of Monterey, it''s California Mission architecture."

"We definitely need to respect the importance of the Osio Adobe," says Erickson. "It''s a delicate site." Other members of the community, including Judy Lehman of the Historical Preservation Society and city councilmember Clyde Roberson, have expressed concern over the project''s proximity to the Adobe, according to Erickson. There have also been concerns over the noise from Alvarado Street. "But this has been a long standing priority of the city''s, to develop the site."

The 630-seat movie house will show primarily first-run independent movies, and art and foreign films, according to Hansen. There will be a Cinema Cafe with patio seating and all six theaters will have Dolby sound. In addition to a possible film festival, Jim Zuur, the owner of Camera Cinemas, also hopes to bring to Monterey a program of sneak previews and celebrity appearances called Cinema Club, that is already successful at Camera Cinemas'' San Jose theaters.

As for the retail shops, Humel explains that it''s "premature to lease them too early. The developer will come to us with possibilities when we''re closer to completion. Right now, we''ve got the theater as an anchor store. Hopefully people will come for a night out, have dinner and see a movie." Hansen says that movies are generally good business in downtown areas. "People are excited to see it coming," adds Harder. "It will pull in all types of people, especially students."