Plans to build San Luis Obispo’s largest residential development in seven years are being revived and could bring 177 new homes to the Margarita area in the southeast part of town.

The residential development, called Serra Meadows, is the most significant new project within the city since the collapse of the housing market.

The land, originally owned by Craig Cowan and Richard DeBlauw, was purchased in January by Resmark Equity Partners — a private equity firm based in Los Angeles — and will be developed by Camarillo’s MD2 Communities.

The project cost is anticipated to reach $40 million, according to David Alpern, director of acquisitions for MD2 Communities.

The majority of the 45-acre stretch was purchased for $7.4 million, according to records on file with the county assessor’s office.

The developer will soon begin grading the area and is in the process of seeking the final approvals necessary to begin building with the goal of having the first model homes complete by April.

“San Luis Obispo is a desirable city and, with a clear lack of new projects that have been built in recent years, there is a demand for new homes,” Alpern said. “We took a close look at the area and the economy, and people want this project and it is time for it.”

Alpern said the defeat of a ballot measure last November that sought to stop the extension of Prado Road to Broad Street made it clear the project is still desired.

The area being developed is part of a group of properties that will trigger and collaboratively fund the extension of Prado Road.

The area — part of the larger Margarita Area Specific Plan, which sets parameters for development in an area bounded by South Higuera, South and Broad streets — is part of a locale that has been long envisioned by the city as a key place for residential expansion.

Claire Clark, the city’s economic development manager, said the development is an important first step to the area’s envisioned buildout 20 to 35 years from now.

“This housing development is expected to be a catalyst for the commercial development envisioned in the Margarita Area Specific Plan that was adopted in 2004,” said Clark, adding that, at completion, the larger area will include 1 million square feet of commercial space, including a business park, offices, industrial and neighborhood-serving retail.

The current project includes 177 single-family homes ranging from 1,500 to 2,000 square feet and 16 work-live units, which are aimed at small home-based businesses with work areas downstairs facing Prado Road and living areas upstairs.

The homes are being modeled after existing homes in old-town neighborhoods throughout San Luis Obispo, said Erik Justesen of RRM Design Group.

The home styles will include craftsman/bungalow, Spanish mission revival, Victorian, provincial and prairie style.

“We are designing an integrated, pedestrian-friendly neighborhood that is modeled off the most quintessential examples of old town neighborhoods throughout the city,” Justesen said.

Alpern said the variety of house designs offered should appeal to a wide variety of buyers and, despite the economy and slowed home sales, make the project successful.

In July, a surge of home sales in San Luis Obispo County broke a downward trend in year-over-year growth that started in February, according to figures from San Diego based real estate tracking firm DataQuick.

Home sales grew 34.7 percent in the county in July compared to the same month a year ago, according to DataQuick, with 83 more homes selling countywide than the 239 sold in July 2010.

Resales of detached single-family homes accounted for about 85 percent of the local real estate market in July, as well as most of the growth. New homes — still the smallest category in the local real estate market — posted just 11 sales in July versus 12 the same month a year ago, an 8.3 percent drop.

“We always hope the housing market will pick up, however, we do not count on it,” Alpern said. “We underwrite a market based on existing resale activity and outreach with the local community. Our deal must work within that reality; otherwise it is a gamble, not an investment.”

Reach AnnMarie Cornejo at 781-7939. Stay updated by following @a_cornejo on Twitter.