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The U.S. Postal Service wants to build a new downtown distribution facility at the site of a former racquetball club to replace current postal space in the U.S. Courthouse.

The 17,000-square-foot building would require the demolition of the vacant Waterfront Racquet and Fitness Club at 229 W. Genesee St. About 30 to 40 postal workers at the Niagara Square Station would be transferred there.

A spokesman for the post office said the department is negotiating to acquire the 2-acre site. The Buffalo Urban Renewal Agency today gave its approval to allowing the waterfront property be used for the postal facility.

At the meeting, the Urban Renewal Agency also endorsed a plan to redevelop the former Sattler's site on Broadway for a K mart store, allocated funds to develop a free-trade center and released federal grants needed for the second Key Center office building and the Market Arcade project.

The post office relocation was prompted by plans to expand court space in the federal building, said Nicholas Fabozzi, field director of marketing and communication. The post office has been asked to leave by October 1991.

"The space in the federal building is needed by other agencies, and we've been requested to find space in the downtown area," he said.

Workers who collect and deliver the mail in the downtown area would move into the new building.

Plans also call for the post office to locate a customer service center equipped with vending machines at a location near the U.S. Courthouse. Cost of the development was unavailable. City officials said they're trying to persuade the post office to use space in the first level of the new Fernbach parking garage on Court Street behind the Main Place Mall for the service center.

The decision to back the K mart proposed for the Sattler's site marked a turnaround for the Urban Renewal Agency, which is headed by Mayor Griffin. Earlier this year, the agency endorsed a plan by Carl Paladino to develop a shopping center and supermarket on the site.

Griffin said he believes the K mart will help revitalize the Broadway-Fillmore business area and the Broadway Market. The market is across the street from the proposed 83,000-square-foot K mart.

Benchmark Development of Amherst has formed SRK Broadway Associates to develop the project. Plans for the $4.9 million development now hinge on whether it will receive a 25-year tax abatement from the Erie County Industrial Development Agency.

In other matters, the agency approved:

Allocating about $2 million to begin developing a Buffalo Free Trade Complex at River Rock Drive and Rano Street. About $1.3 million will be used to renovate vacant Chase Bag building at 175 Rano St.

The remaining money will be used to develop plans for building warehouse and office space totaling 40,000 square feet. The first phase of the project will cost an estimated $10 million.

Releasing the remaining funds in a $4.5 million federal urban development action grant for construction of a second Key Center tower office building. The developers, Citicom, told the city last week they intend to proceed immediately with building the additional offices.

Releasing $3.6 million in urban development funds for the Market Arcade project. About $500,000 will be used by the Arcade Cinema Group to renovate buildings at 641-649 Main St.; $1.5 million will be used to renovate properties at 615-623 Main St., and $1.56 million will be used to help build a Journey's End hotel at 597-611 Main St.

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