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NIAGARA FALLS -- The state will spend $2.75 million to sweeten a redevelopment deal for a condemned hotel near Goat Island that already has an unusual agreement to avoid paying property taxes for five years.

Empire State Development Corp., the state development agency, announced Friday that Merani Hospitality will receive $2 million from its Upstate Regional Blueprint Fund for a $15 million project to refurbish and reopen the former Fallside Hotel at 401 Buffalo Ave.

In addition, the project will receive a $750,000 grant from USA Niagara Development Corp.

The combined package is the second-largest incentive the state economic development agency and its Niagara Falls subsidiary have given to a private hotel in Niagara Falls in recent years.

"The hotel is currently vacant, blighted and condemned," said USA Niagara Development President Christopher Schoepflin.

Schoepflin said state officials believe the project could not have moved forward without the public investment.

Merani Hospitality, owned by a Canadian hotelier, plans to completely gut and renovate the hotel, which closed in 2009 after languishing for years with little investment.

The renovated hotel, expected to take about two years to complete, will operate under a national flag as a "full-service, high-end property" said Faisal Merani, president of Merani Hospitality.

Merani Hospitality purchased the closed hotel last year along with another shuttered hotel, the former Inn on the River at 7001 Buffalo Ave. Since then, Merani worked out a deal with the Niagara County Industrial Development Agency in which the former Fallside hotel will pay no property taxes for five years as long as the project reaches certain benchmarks.

The city's NFC Development Corp. in November awarded a $650,000 grant for the renovation of the Inn on the River.

Merani's family also owns a Holiday Inn on Buffalo Avenue in Niagara Falls and two hotels in Niagara Falls, Ont.

The $2 million from Empire State Development would be given in the form of a loan for the first five years. During that time, the loan would be converted to a grant in increments as long as the hotel maintains 45 jobs in its first year, 50 jobs in its second year and 55 jobs in the following three years, said Katie Krawczyk, a spokeswoman for Empire State Development.

During the five-year period, the hotel will pay 3 percent interest on the $2 million.

The project was awarded the $2 million out of a competitive grant process through Empire State Development's Upstate Regional Blueprint Fund program.

"In an environment where state dollars are spread very, very thin," Schoepflin said, "this is a very good thing for downtown Niagara Falls."

e-mail: djgee@buffnews.com