State College Borough Council approved a new zoning district this week that allows for a proposed 140-foot cineplex, condo and retail building downtown.

But now that the project's developer has the zoning approved, its next hurdle is to find funding for the cinema.

"It's a critical step in terms of accomplishing what we've illustrated we wanted to build," said Tim Fulton, vice president of Susquehanna Real Estate (SRE), the project's developer. "That really has to happen to set in motion the schedule for the rest of the project."

Developers are planning a 10-screen, three-story cineplex for the high rise, set to be located at the corner of Fraser Street and West Beaver Avenue. The $38 million project will also include retail and office space on the first two floors, 54 owner-occupied condominiums on the upper floors and two floors of underground parking for its residents.

Fulton said SRE is working with the State College Downtown Improvement District (DID) to secure state and federal funding for the project.

The 1,550-seat cinema's three-story design makes operating costs too expensive without additional funding, Fulton said.

He said the DID hopes to receive a state redevelopment assistance grant in the form of a 20-year loan to cover the cinema's $10 million cost. Depending on how the loan is financed, the company would be exempt from $3.8 million to $5.1 million of that cost.

Fulton said he's confident that DID will get the funding. "We've been given indications by the state that they really like the project because it's ready to be built and it has a lot of leverage," he said. "It has the right ingredients, but you never know until it's awarded."

DID Director Teresa Sparacino said she'll apply for the loan once the state's indicated how much funding the project will receive. She said she should know by early next year.

The project's other elements will be privately financed through a bank or lending institution, not through taxpayer money, Fulton added.

Construction would begin, at the earliest, in late summer 2006, he said, and would be completed 12 to 14 months later.

Fulton said plans couldn't have moved forward without the zoning change that council passed Monday night. "We were glad to see that the zoning passed," he said. "It enables us to do our project, but on a greater level I think it will now allow for other developments downtown and help make the downtown and borough more competitive with the suburbs."

Borough council voted 6-1 for two ordinances that created a commercial incentive zoning district and allowed "signature" buildings up to 145 feet. Both initiatives give developers additional building height and other incentives if they use environmentally friendly designs, underground parking or other features.

Sparacino said she thinks council's near-unanimous vote shows that it backs projects that bring more permanent residents and businesses to the borough to increase its tax base.

Sparacino said she expects the complex to bring in 200,000 patrons each year. The condominiums, which aren't for renters, will cost about $380,000.

Borough Manager Tom Fountaine said the borough plans to receive SRE's zoning application later this week.