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Santa Rosa has been cleared to sell the former AT&T building downtown to a developer with long-delayed plans to transform the concrete monolith into a modern, glass-clad office building.

The state Department of Finance on Friday afternoon informed local officials that the sale, held up for more than a year by the demise of the city's redevelopment agency, could proceed.

"It feels good to be at this point," said a relieved Dave Gouin, the city's director of economic development and housing. "If we can close in the next two weeks, it'll be huge for this community."

The project, known as Museum on the Square for the gallery space once planned for the ground floor, has been the city's highest profile economic development effort for years.

Mayor Scott Bartley said the prospect of finally getting new businesses into a remodeled building in what is now the "deadest part of our downtown" would be a huge boost for the city.

"It's fantastic news that this thing came together and we can get moving on it," Bartley said.

The decision from the state comes not a moment too soon. Developer Hugh Futrell has said he needed to complete the sale by the end of August in order to keep a key anchor tenant. The city now anticipates closing the deal by mid-September, which Futrell has indicated would satisfy the tenant, Gouin said.

Futrell was out of town and could not be reached for comment.

Now that the sale has been approved, Gouin said he was free to identify the anchor tenant as Luther Burbank Savings. The fast-growing bank, which is expanding its mortgage lending business, is looking to move out of offices it leases on Fourth Street east of D Street, Gouin said.

The other major tenant is TLCD Architecture, which designed the project. It started out as a 10-story tower with five stories of residential atop five stories of office and commercial space in the existing structure. The city redevelopment agency bought the eyesore for $3 million in 2007 and agreed to sell to Futrell in 2010 for $1.9 million.

But the tight lending environment and challenges inherent in financing a mixed-use building were compounded by the demise of the state's redevelopment agencies. In May, Futrell was forced to lop the apartments off the top of the building and focus on remodeling the existing structure. At the time Bartley likened the revised project to a "Hail Mary."

Weeks later, the Sonoma County Museum, which had plans for a first floor art museum, pulled out of the project, citing the delays and continued uncertainty surrounding the project.

Futrell has said he's not worried about finding a new ground-floor tenant for the building.

State finance officials had called into question the extensions the city had granted to Futrell for the sale, arguing that it should have been moving more quickly to liquidate the property to generate funds to be shared among various taxing districts, such as schools.

Gouin said the city stressed to state officials that the best way for the city to carry out its obligations to wind down its redevelopment agency and disperse the former agency's assets was to let the sale to Futrell move forward.

The state required the city to get an updated appraisal for the property, which it did, Gouin said. The new appraisal came in lower than the old one, however. The new appraisal sets the vacant building's value at $913,000 to $1.2 million, Gouin said.

That means the city will have to renegotiate the $1.9 million sale price with Futrell and his lenders, likely settling on a price somewhere within the appraisal range, Gouin said.

Bartley said he believes Futrell has completed construction drawings and review by the city building department and things should start happening on the property soon after the sale is complete.

"I think he's going to be getting things moving as quickly as he can," Bartley said.

You can reach Staff Writer Kevin McCallum at 521-5207 or kevin.mccallum@pressdemocrat.com. On Twitter @citybeater.