IT WAS in April 2011 that then-Mayor Sam Adams used a pair of regular-size scissors to cut the ribbon on a big idea. In a city already wringing its hands over rising rents and a lack of affordable housing, the new Milepost 5 artists' community the mayor inaugurated that day was potentially a huge step forward.

The development—a converted Baptist nursing home on NE 81st—was Adams' brainchild, he said. One building of the two-structure complex, called "The Studios," offers dozens of cheap apartments to Portland artistic types who don't mind sharing a kitchen and bathrooms (rents start around $300). The other, known as "The Lofts," has provided relatively inexpensive condo living since 2008. Milepost 5 has ground-floor art studios, a theater, a community garden, and more.

Problem is: Much of this artist's paradise has never quite been legal by the city's lights.

Even as Adams snipped and glad-handed that spring day—explaining how the idea for the development had struck him as he drove up NE 82nd—the Milepost 5 "Studios" building had been out of compliance with building codes for more than 18 months, city records show. It's still out of compliance nearly five years later, though that might be changing after city code enforcers found a heap of permitting problems at the development in June.

"We were unaware that we were in violation," says Brad Malsin, cofounder of Beam Development, which created Milepost 5 in partnership with the Portland Affordable Housing Preservation Trust. "Some of this stuff does slip through the cracks."

Back in 2007, the city's Bureau of Development Services (BDS) agreed to allow Beam two years to develop and use the "Studios" building for residential living. But because the building wasn't coded residential, BDS said, Beam would need to secure the proper permissions to come into permanent compliance by the time that window closed. Instead, the city says, Beam just let it lapse.

It's been operating at odds with city regulations since October 12, 2009.

It wasn't just the use permit. City records show six additional permits since 2009—dealing with issues like signs, kitchen remodels, fire alarms—never received final inspection approval. And Beam installed a theater in the old nursing home several years ago "without the required permits, inspection, and approvals," according to a June 20 violation notice.

It's symptomatic of what some people familiar with Milepost 5 say has been a disinterest on the part of managers in a project unlikely to yield high profits. Beam's Malsin, meanwhile, says the permitting confusion is an unfortunate side effect of running an experimental community. And Malsin doubted, recently, that the development was as far behind in paperwork as the city says, suggesting BDS might have lost certain forms.

"Listen, I'm a fairly large real estate developer who tries to do everything by the book," he said. "I have too much to jeopardize."

It wasn't until May, after a resident complained about noise coming from the on-site theater company, that BDS learned of many of the changes at Milepost 5. The development had been flagged in 2012 as out of compliance—three years after its use permit had run dry—and BDS had put a hold on any further permits.

Now, Malsin says, Milepost 5 is on track to compliance at long last.

"We've tried to do everything on a little bit of a shoestring to keep the cost down for the tenants," Malsin says. "I have really suffered a lot of financial difficulty in trying to bring this thing up. This is not us trying to run some kind of flophouse where we're not paying attention."

The development has until the end of the month to make the required changes, says Ed Marihart, who manages enforcement for BDS. If not for the noise complaint, "it'd probably still be sitting there," he says.

It's not the first trouble Milepost 5's seen in its short existence. Months after Adams cut the ribbon on the project, a group of apartment dwellers brought a list of maintenance concerns to Beam—things like brown water from the taps—and said the company had misled them about providing some amenities ["Mutiny at Milepost 5," News, July 28, 2011]. The clash prompted a meeting that included a mayoral staffer and a professional mediator.

At Milepost 5 on a recent Monday, it was hard to tell how successfully those concerns have been addressed in the years that followed.

Two people chatting outside the development refused to give their full names. And though clearly informed about past controversies at the complex, they wouldn't discuss the situation, saying residents and surveillance cameras might see them talking to the Mercury.

Then there was Jon Krebser, a tenant who was happy to comment as he brought a set of golf clubs up to his apartment. Krebser's lived at Milepost 5 since November, he said, and has no complaints about management, though he's aware other residents might.

"I haven't had any issues at all, actually," said Krebser, 27, who pays $300 a month for his place. "It's nice. It's exactly what I was looking for."