Work is moving forward to bring a mermaid bar and other nightlife venues to troubled K Street Mall, while the city attempts to address a lawsuit over the development.

At the end of May, developers David Taylor and Los Angeles-based CIM Group finished the first stage of interior work for the controversial project to redevelop long-vacant buildings at 1012 K St. and 1016 - 1022 K St. Crews cleaned up contaminants including asbestos and lead and also took down some inside walls.

The developers are now working on construction drawings to gain approval to bring the shell and core up to code. They are expected to submit the drawings to the city in August to show how they plan to meet the city's seismic, electrical and plumbing requirements, said Beth Tincher, a senior project manager with the city's Economic Development Department.

San Francisco nightclub owner George Karpaty, the project's proposed tenant, is planning to operate two high-end nightclubs at 1016 - 1022 K St.: the 3,050-square-foot Dive Bar with a giant aquarium inhabited by live, human mermaids and a 4,300-square-foot over-30 dance club whose widely ridiculed name is proposed as Frisky Rhythm; and Pizza Rock, a 5,600-square-foot gourmet pizza restaurant with an outdoor patio. The structure last housed a Hit Or Miss clothing store.

By the end of July, Karpaty is expected to submit applications for special permits needed to operate the nightclubs and outdoor patio, as well as to get the exterior design approved, Tincher said.

The developers will later propose another project for the building at 1012 K St., previously a Rite Aid.

The city's Redevelopment Agency currently owns the land and will later transfer ownership to the developers. Tincher could not provide a dollar amount for the land's value.

"There's a negative value shown on the property because of the contaminants. It's not a site that most people would consider valuable," she said.

The Sacramento City Council came under fire in March for approving $5.7 million in subsidies for the project on the blighted mall. The funding includes $5.4 million for tenant and public improvements, and nearly $300,000 for abatement and interior demolition.

Former Sacramento City Councilman Josh Pane, nearby restaurant and club owners and some residents criticized the city for giving the money to David S. Taylor Interests and CIM. Pane sued the city and the developers in spring to try to stop the project. He contends that the city OK'd the development without a proper CEQA review.

Attorneys for the city and developers are holding ongoing meetings with Pane and his attorneys to try to resolve the issue.

"We feel very confident that everything was done absolutely 100 percent correctly," said Ellen Warner, a partner at David S. Taylor Interests.

Providing redevelopment funding had been part of the deal to sell Taylor the Sheraton Grand Sacramento for $130 million last year. The city agreed to split $50 million in profits from the sale with Taylor and CIM for development in the J, K and L Streets corridor, she said.

Other Sacramento Press stories on the subject can be found here and here.

Public hearings will be held after the special permits applications are submitted.

Suzanne Hurt is a staff reporter at The Sacramento Press. She can be reached at 804-2856 or suzanne@sacramentopress.com.