The 2,000-square-foot pool is bone dry and the gym floor warped, but new life is brewing in the Franklin Building in downtown Watertown.

Crews from ConTech Building Systems, Gouverneur, began demolishing unstable areas, rebuilding support walls and removing asbestos from the Public Square building about six weeks ago.

Neighbors of Watertown, the nonprofit agency coordinating the project, has obtained about $7.8 million from a variety of federal, state and private sources for the project.

While walking along a ground floor corridor of the three-story building Friday, Executive Director Gary C. Beasley said that once demolition is complete, Neighbors will be able to solidify its remaining finances for the 18-month project.

Once complete, the building will consist of commercial and residential space — all wrapped within the turn-of-the-century arcade.

"It's a really funky building," Mr. Beasley said. "It will be interesting to see the plans come all together as the project progresses."

The building was once dubbed the "Franklin Arcade." Its central walkway allows patrons to access multiple storefronts, similar to the nearby Paddock Arcade. Mr. Beasley said that while the Paddock uses natural light for its walkway, the Franklin building isn't so lucky.

"There's a roof, so we'll need to toy around with some ideas about what we want to do with it," he said.

Reminders of past tenants still litter the building.

The YWCA occupied the building for most of its existence. After experiencing financial troubles, the YWCA lost its accreditation in 1997. The city condemned portions of the building in 2001, largely because of problems stemming from a leaky roof.

The building now is owned by Public Square Developers LP. Watertown Local Development Corp. is the general partner via the limited liability corporation 50 Public Square. Neighbors of Watertown plans to take over as the general partner once construction loans have been closed.

Mr. Beasley said the building will be renovated into at least nine commercial areas that range from 800 square feet to 2,000 square feet. Some of the larger rooms — like the filled-in pool — can be partitioned to accommodate multiple tenants.

Many of the trapezoidal-shaped rooms on the upper floors will be renovated into 17 apartments that range in size from 650 square feet to 1,200 square feet.

The contractor will keep the numerous arched-top windows that overlook Public Square but replace the existing glass with a thicker, more energy-efficient version.

"We did receive historic tax credits," Mr. Beasley said, "so the facade must be kept, the moldings and trim will stay, the arch over the door will stay. We can't just board up windows or make our own."

"People talk about green initiatives, but there's nothing greener than taking an existing building and renovating it," Mr. Beasley said. "You're essentially recycling the building."