After years of propping up the condemned Penacook tannery building in the hopes of restoring it, the city is preparing to demolish it. A plan to build 45 condominiums at the tannery suffered a major setback when sections of the wall and roof collapsed this winter.

City planners were already grappling with a $2 million shortfall for the project, and the structural damage made the costs insurmountable, said Matt Walsh, city assistant for special projects.

"It was the final straw," he said yesterday.

City councilors will decide next month whether to spend $375,000 to tear down the building. Demolition could begin by the end of March, Walsh said. Should the council decide it wants to save the building, it would cost at least $2 million in the short term, according to a reports completed by Walsh.

At a hearing in Penacook last month, city staff conducted a straw poll, asking the 60 residents in attendance what they wanted to do with the tannery, which has dominated the village center for 160 years. An overwhelming majority voted to take it down, Walsh said.

City Councilor Liz Blanchard, who represents Penacook, said residents are ready to move on.

"It's always sad when something like that really falls through because I am all for rehabbing old buildings," Blanchard said. "It's beyond rehabbing at this point. . . . Everybody has come to the conclusion that there isn't any choice. Even the preservation people have realized that."

The tannery was once a textile mill where workers made cloth for ships. But for most of its life, the building operated as a leather tannery.

The building has been deteriorating since Allied Leather left in 1987. The city condemned the property in 2001 and then bought it in August 2003. A structural assessment revealed that half of the roof had to be replaced and that water had damaged mortar in the stone walls. The wood below the roof needed replacement due to water damage or chemical saturation. Overall, the building was determined to be in "poor to bad condition."

Between January 2003 and January 2006, the city spent more than $274,500 on maintaining the building and on engineering costs for those repairs, including patching the roof and making two rounds of structural repairs.

The city entered into a partnership with Chinburg Builders in Durham in 2005, selling the tannery to the developer for $245,000 and agreeing to clean up the site, which was contaminated with chemicals. The city spent $1.4 million of federal funds secured by U.S. Sen. Judd Gregg to clean the property, a measure that would have been required even if the city had always intended to tear down the building, Walsh said.

Chinburg planned to revamp the building into 45 one- and two-bedroom condominiums. His firm also planned to use a brick building along East Street for offices and a 2,500-square-foot building on the riverbank for the condo association's community building. Landscaping plans included a river walk and overlook with public access and a private patio and barbecuing area.

Chinburg received zoning and planning board approval last spring and intended to begin construction last fall. But in August, the company performed a market study that found a $2 million gap between the costs to renovate the property and the revenues the new condominiums would generate, Walsh said. The estimated construction costs was $9.6 million, but gross sales estimated for the 45 units added up to only $7.9 million, according to Walsh's report.

City planners reviewed several financing sources, including Community Development Block Grants, the Land and Community Heritage Investment Program, and the New Hampshire Housing Finance Authority, but there were too many restrictions to apply any of them to the tannery project.

Chinburg proposed adding more dwellings, but even if the plan had been approved, it would have required a major subsidy from the city, Walsh said.

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