Owner David Kingston confirmed he had been advised Friday that the government had allocated $2.7 million to “investigate a possible acquisition of the Roxy” but he planned to proceed with lodgement of a development application for a major renovation in the next four months to turn the Roxy into a hotel venue with bars and restaurants.

“I have multiple consultants working on plans for the major upgrade and we presented the preliminary plans to seven representatives of council and heritage on site at the Roxy prior to Christmas,” he said.

If Kingston is unwilling to sell, the state government may consider compulsorily acquiring the theatre to save it as an arts space.

Robert Fox of the Save the Roxy Theatre group said the Roxy’s reawakening as an arts and cultural centre would go a long way to restoring Sydney’s rightful place as the country’s theatre capital at a time when Sydney was experiencing a shortage of theatre capacity.

“This is Parramatta’s Opera House,” Fox said. “Parramatta is a great city and it needs an opera house, it needs a concert hall. This is about Parramatta, it’s about Sydney and it’s about history. I can’t wait for the people who have lived in Parramatta and the west for fifty years who know what a gem this is because they have experienced it themselves, to know they are going to get their beloved Roxy back.”

But he signalled that the group would campaign for the Roxy’s restoration as a theatre, rather than as a live music venue. Ideally, an extra three metres of space was needed at its rear doors for the Roxy to have enough stage depth for a full range of theatre productions. “Our next campaign is to ensure that the Roxy is used as a live theatre capable of staging the largest of productions for which another three metres would not be critical but certainly useful,” Fox said.

The heritage-listed Roxy holds a sentimental place in the lives of many Sydneysiders. Built in the Spanish Mission style with a palm court, it opened in 1930 as “Talkies” were taking off. In its heyday it boasted a Christie organ that was said to be among the finest in the state.

The cinema chain Hoyts went on to purchase the site in 1946, and sold off the organ which was later destroyed by fire. In 1974 the National Trust placed the Roxy on its heritage register to prevent its demolition.

After 72 years of use as a cinema, the Roxy closed in 2002, turned into a hotel and was then shut again in 2014. Three years ago plans to renovate and redevelop it with a 29-storey tower cantilevered above were rejected by the Land and Environment Court as having an unacceptable impact on its “identified heritage significance”.

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A start on compulsory acquisition of the Roxy, and another former picture palace, the Metro-Minerva in Kings Cross was recommended as part of the NSW Government’s $5 million stage and screens strategy prepared for State Cabinet one year ago and championed by the former arts minister Don Harwin.

The fate of the Roxy had threatened to spill over into campaigning for the highly contested seat of Parramatta, currently held by retiring MP Geoff Lee by a margin of 6.3 per cent.

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