GARY — The recent discovery of additional asbestos combined with funding tied up by the federal sequestration is delaying the demolition of the blighted downtown Sheraton Hotel.

“We were impacted by the sequestration and there’s still a significant amount of asbestos left,” Mayor Karen Freeman-Wilson said Thursday.

She said the city is reviewing the asbestos removal contract originally signed by a developer who wanted to turn the 14-story hotel, built in 1971, into a senior citizen high-rise. The hotel has been closed since the mid-1980s.

Federal officials from the U.S. Environmental Protection Agency recently inspected the building.

In 2007, New Gary Development LLC, a group of Chicago-based investors who had the backing of former mayor Rudy Clay, received a $735,000 loan from the city’s Brownfield Cleanup Revolving Loan Fund.

In 2008, the EPA approved the loan and New Gary hired J&K Environmental Inc. of East Chicago in 2008 to remove the toxin.

Later, the Indiana Department of Environmental Management inspected the project and said 98 percent of the toxin was gone. Cleanup on the remaining 2 percent stalled along with the project that never materialized.

In 2010, the hotel ownership reverted back to the when the developer failed to pay the loan and owed more than $100,000 in back taxes.

In her first week in office, Freeman-Wilson vowed the hotel would come down and be replaced by the park.

“This is delaying it, but it’s not that it won’t get done,” said Freeman-Wilson.

She said the city is seeking federal grants to aid in the demolition, estimated at about $1.3 million.

Last month the Northwest Indiana Regional Development Authority approved a $200,000 Challenge Grant toward the demolition to serve as a match for federal money.