Stillwater’s historic National Guard Armory could house high-end apartments and a distillery, in a development proposal molded in part by concerns about dwindling downtown parking options.

CVII Holdings LLC last month paid $610,000 for the 96-year-old building on Chestnut St. E., including $320,000 in special assessments. CVII President Matthew Wolf had planned to turn the former armory into office and commercial space. But the City Council’s long-term plans for downtown parking restricted his redevelopment options.

The current proposal, which includes space for a distillery or brewery in addition to eight 2- and 3-bedroom apartments, would turn the armory’s lower level into a garage so that all parking needs would be met onsite.

That model was brought before the City Council on Tuesday for discussion.

“We made up a new proposal to turn a whole half of the building into parking just to please the city,” said Dominick Grande, vice president of CVII Holdings.

“The city has always held that a reuse of that historic building would be great for our community and we’d love to see it back on the tax roll,” said City Administrator Tom McCarty.

But the council was not willing to approve a redevelopment plan that would further squeeze downtown parking options, he said.

Stillwater’s comprehensive plan calls for the construction of a parking structure on the block that includes the armory, bordered by 2nd, 3rd, Chestnut and Olive streets. The city owns a municipal lot on that block and recently made an effort to take a corner parcel through eminent domain.

That resolution was rescinded Tuesday, though McCarty said the city remains interested in the parcel, owned by a dry cleaning business.

The council also discussed the possibility of joining with the armory’s owners in a public-private partnership to build a parking structure. But Wolf said there was little opportunity for a developer to make a profit in that scenario.

“It felt like there was a line drawn in the sand that [the City Council] wanted to get a contribution to their downtown parking issues as part of our redevelopment,” he said. “We were left with our only option — to sidestep them and just put all parking onsite, or else let this sit vacant.”

Though the City Council has yet to approve CVII Holdings’ plan, members were receptive to the idea. Mayor Ted Kozlowski and Council Member David Junker applauded the firm for finding a way to provide parking.

Grande called it a “shame” to turn half of the historic structure into parking, but said he’s excited to move forward with the project.

“We ultimately want to be cooperative, and we just love the building,” he said.

The armory was replaced in 2017 by the $20 million Stillwater Army National Guard Readiness Center, located about 2 miles west.