WATERVILLE — A project expected to cost more than $20 million to transform about half the former Lockwood Mill at 6 Water St. into residential and commercial space has been delayed due to increased construction costs.

City Manager Steve Daly told the City Council on Tuesday that a lack of financing is a result of the substantial increase in building materials and construction costs due to the coronavirus pandemic.

“The organization that’s doing the renovation has indicated that they expect to have their financing package put together in early 2023, which is a year from now,” Daly said.

One consequence of the delay is that a $450,000 Community Development Block Grant the city helped secure for the project has been withdrawn, because the federal Housing and Urban Development rules require a grant to be used within three years of the time it is received, according to Daly.

The state, he said, is eager to invite the Lockwood Mill project to apply again in 2023.

“I suspect with that kind of enthusiasm that they will get a grant of similar size,” Daly said.

The Lockwood project also applied for $1 million in American Recovery Plan Act funding available through Kennebec County, Daly said, adding that he recommends the city help apply for that funding from the county, as well as for the added amount of $450,000 lost as part of the community development block grant. Daly said he would approach Lockwood officials about that idea, if the council agrees.

“Absolutely, yes,” said council Chairwoman Rebecca Green, D-Ward 4.

The Lockwood redevelopment would include 65 apartments on upper floors of the building’s southernmost wing, with 48 of them intended to be affordable units and 17 offered at market rates, with the affordable housing tied to the local median income. Commercial and retail uses would take up about 4,000 square feet of the 120,000-square-foot, four-story building. Work to clean and remove asbestos inside the building has been ongoing for about a year.

Mariah Monks, a director at North River Co., which owns the building and the two adjacent former mill buildings, said in December the company hoped to start construction this year. The southern wing of 6 Water St., which is parallel to the Ticonic Bridge, would be developed as part of a first project phase, and the wing parallel to Water Street would be done later. The cost and details of the second phase have yet to be determined.

North River Co. is a privately held real estate investment and management firm based in New York City. It invests in and manages property on behalf of high-net-worth people, family offices and institutional investors, according to the company, which operates an office in Brunswick.

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