Developers want to turn the Olde Federal Building complex at 295 Water St. in Augusta, pictured Oct. 15, into a 40-room boutique hotel with a first-floor café, rooftop bar, event and meeting space. City councilors last week unanimously approved a tax break for the project worth $2.6 million over 20 years. Joe Phelan/Kennebec Journal

AUGUSTA — City councilors unanimously approved a tax break worth $2.6 million over 20 years to help a pair of developers turn the historic, castle-like Olde Federal Building into a boutique hotel they hope will be a destination drawing people downtown.

The developers — one a downtown resident who has redeveloped other buildings there, the other a partner in a Portland company with a track record for developing independent, high-end hotels in Maine — said their ambitious proposal wouldn’t happen without a tax increment financing, or TIF, tax break from the city to help with the costs of converting the old granite block building into a modern hotel with a spa, café, public meeting areas, and a rooftop bar overlooking the Kennebec River.

“We’re Mainers, we want to see this property and project succeed and help the community and downtown,” one of the two developers, Andrew LeBlanc, told city councilors Thursday night. “Without the TIF, we don’t believe this project is financeable. If not but for the TIF, we wouldn’t be able to get this project done. With the credit enhancement agreement, we’re able to use that to increase the amount of debt available to the project, which would allow for us to fund this very ambitious, very exciting, $30 million development.”

LeBlanc and fellow developer Nate DeLois plan to turn the Olde Federal Building, which has had a variety of uses over the years and still has a post office branch within it, into a 40-room hotel with a first-floor café, rooftop bar, event and meeting space and, in a few years after the post office would move out, a bathhouse and spa with hot tubs, a sauna and other amenities.

City councilors lauded the proposal before voting 8-0 in favor of the TIF deal.

“The development of that building is going to be like a lighthouse, you just don’t know how far it’s going to reach. I see it reaching far and wide beyond the downtown district,” said Ward 4 Councilor Eric Lind, whose father moved from a farm in Appleton to Augusta to work in the building. “It’s an iconic cornerstone of downtown and I just see it as a huge jumpoff for that part of downtown, if not the entire city. I’m looking forward to seeing it turn into what you’re talking about.”

LeBlanc previously developed The Vickery property into 23 apartments downtown and DeLois and his brother co-own Uncommon Hospitality, a Portland-based developer of hotels including Longfellow Hotel and The Francis Hotel in Portland.

LeBlanc said they plan to start construction in the spring and hopefully open the hotel 12-18 months after that.

The post office leasing space in the 1890 building would remain until 2027, DeLois said. When it moves out, they’d replace the post office with a bathhouse with steam rooms, hot tubs and other spa amenities which, according to renderings of the proposal, would include a deck with lounge chairs on the river side of the building.

Under a proposal from developers, the Olde Federal Building complex, seen Oct. 15 at 295 Water St. in Augusta, would be turned into a boutique hotel, complete with a rooftop bar overlooking the Kennebec River. Joe Phelan/Kennebec Journal file

DeLois said the project would create about 30 full-time and 20 part-time jobs, including housekeepers, restaurant and bar staff, and all levels of management, which he said would be good-paying jobs. TIF application materials filed with the city indicate jobs there would have starting hourly wages of $18 with management salaries ranging from $50,000 to $120,000.

Keith Luke, the city’s economic development director, worked out a 30-year TIF agreement in which the developers would recoup a portion of their property taxes on the added value of the property for 20 years. The city would get the full amount for the final 10 years of the agreement. For the first 20 years, developers would get back 75% of the property taxes generated by the new valuation, estimated at just under $2.6 million over two decades. The city would retain 25% for the first 20 years, and 100% the final 10 years, for a total of $2.5 million over the 30-year period.

Luke said the city would use its share of the TIF proceeds for economic development and infrastructure-related projects downtown.

TIFs allow municipalities to shelter property taxes generated by new development within designated districts. Sheltering money through a TIF means it would not be added to the city’s total property valuation for state tax calculation purposes.

Without that, as a municipality’s total property valuation increases, its state-provided revenue — such as aid for education and municipal revenue sharing — decreases, and its county tax liability increases. Since new value sheltered in a TIF does not count toward a municipality’s property tax value, its state aid funding is not cut until the TIF expires.

Upon completion, the project would be expected to add just under $13 million in new taxable value to the city.