The Sherman Plaza project can no longer count on a health club to occupy its second and third floors, but the developer said interest in his venture remains strong.

Lakeshore Athletic Club, which has pulled out of the construction project, was originally slated to take 80,000 to 90,000 square feet on the second and third floors of the retail section, said Dick Peach, president of the Evanston Chamber of Commerce. Although the club will not have a location in the plaza, its parent organization will still be involved as a financial partner, said developer James Klutznick of Thomas J. Klutznick Co.

Maureen Barry, senior assistant to the city manager, said Lakeshore has other projects in Denver and London and simply overextended itself.

“They felt that it wasn’t financially feasible for them to do the project,” Barry said.

Representatives of Lakeshore could not be reached for comment.

Evanston City Council approved the Sherman Plaza project in 2001, but the garage that occupies its proposed location has yet to be demolished.

The Sherman Plaza project will consume nearly the entire block of Sherman and Benson Avenue between Church Street and Davis Street. The other buildings bordering the existing garage will remain.

City Manager Roger Crum said Tuesday that the parking garage currently occupying the space is set to be demolished March 1.

Once the Sherman Avenue garage is demolished, a retail section, a 25-story condominium structure and a 12-story parking lot will be built on the space, Klutznick said.

Barry said the city is waiting for a financial plan from Klutznick before the demolition takes place, but city representatives are confident that the funds will come through.

“We’re kind of in a bit of a holding pattern,” Barry said. “Until we know their financing is in place, there is not really anything we can do to further the process.”

Peach attributed the project’s delay to Klutznick’s struggles in getting financial backing in a bad market. The falling stock market created a difficult situation for Klutznick when he was searching for retailers.

“He just couldn’t pull it together before the market fell out,” said Peach, who also owns Dempster Auto Rebuilders, 2001 Dempster St.

Peach said Klutznick still has a lot of commercial space to fill and has had trouble obtaining financing for the project.

“I really believe that Jim Klutznick, had he started the project a year earlier, he would have been done now,” Peach said.

With the market on an upsweep, Klutznick now has a better chance of convincing businesses join the project, Peach said.

Klutznick is still looking for a health club to sign on to the project. There are four prospective health-club operators to fill the space, he said, listing Evanston Athletic Club, 1723 Benson Ave., as one of them.

Peach said EAC has a great need for expansion to serve its large customer base, so a move to Sherman Plaza might make sense.

Representatives of EAC could not be reached for comment.

Barry said she is not sure about the number or names of businesses in negotiations for the retail portion of the Plaza.

But Peach emphasized the importance of getting the garage demolished as quickly as possible, saying the state of the current parking garage is “deplorable.”

“If it falls on someone, the lawsuit’s going to be staggering,” Peach said.