With a developer and the City Council at an impasse, a citizens group offered to raise the $700,000 unfunded portion of a $21 million project to save the former Fergus Falls state mental hospital from being torn down.

The offer came during a meeting Monday night between the Fergus Falls City Council and developer Ray Willey, who insisted that the city invest something in the restoration of the mammoth, century-old former hospital, known informally as the Kirkbride.

After several exchanges in which Willey and council members appeared not to be making progress, a leader of a group called Friends of the Kirkbride stood at a podium and said it would raise the $700,000.

"We didn't know how the council would proceed with it," said Laurie Mullen, a member of the group. "We had talked about it for months, so when it stalled for a bit, we were prepared to fill that gap."

The council accepted the offer, striking a three-partner deal with the community group and the private development firm: If the citizen group can raise all of the funds and present the cash by Dec. 31, the city will sign a developer's agreement with Willey's company that day.

By Tuesday evening, Mullen said the group received $500,000 in local pledges.

The state of Minnesota closed the hospital, which was built in the 1890s, in phases between 2005 and 2009. It handed over the four-story, 500,000-square-foot building to the city in 2007 and provided grant funds for either the renovation or demolition.

With those grant funds due to expire in 2016, the city's options narrowed and demolition grew imminent.

The proposal by Willey's Historic Properties Inc., a Georgia company that specializes in older buildings, made it further in the city's review process than any other developer's. Its plan calls for a $42 million restoration, completed in two $21 million phases, that will turn the building into apartments, restaurants and other businesses, including a "maker's center" for local artists.

But the project encountered roadblocks in October, when council members raised concerns about financing.

After clearing up several misunderstandings last week, Willey said the company secured enough funding for the first phase but he asked the city to invest 3 percent of the cost as a symbol of support and investment in the project's success. In an interview last week, Willey called this $700,000 sum "a fair request considering the greatest beneficiary will be the community."

Willey didn't return a call for comment Tuesday.

Along with Friends of the Kirkbride, local artist and historical groups have rallied in support of the building's preservation. But redevelopment proved difficult due to the property's sheer size and rural location in a small city of 13,000.

"I think that all of us feel that we are trustees of this community at large and we all need to be good stewards," Mullen said. "The Kirkbride is a gift to us from a previous generation, but it was a gift with strings. And I think that the people in Fergus feel we are obligated to pass this gift on to future generations in a better state than the way we received it."