After months of uncertainty, the future of Ann Arbor's historic State Theatre has been determined.

The Michigan Theater Foundation, the group that operates the nonprofit Michigan Theater at 603 E. Liberty St., signed a purchase agreement Monday to acquire the nearby State Theatre at 233 S. State St.

The State Theatre will continue to serve as a home for film screenings, and the Michigan Theater has long-term plans to improve the 72-year-old State Theatre.

Including the acquisition cost, the Michigan Theater plans to invest between $2 million to $3 million in improvements to the State.

“We are grateful to the State Theatre owners for negotiating with us in good faith,” said Michigan Theater Executive Director Russ Collins in a statement. “We believe this opportunity benefits the community and fits the mission of the Michigan Theater.”

Michigan Theater's acquisition of the State Theatre comes seven months after The State Theatre LLC, the ownership group that manages the State Theatre building, asked Ann Arbor's Historic District Commission to review plans to transition the building's second floor into office space.

The first floor of the building on South State Street is an Urban Outfitters, which will continue to operate, and the second floor contains the State Theatre’s two screens.

Jim Chaconas, a member of the State Theatre LLC ownership group, said in November the State Theatre was not performing well enough to upgrade to digital projectors.

One month later, and after the Michigan Theater launched a "Save the State" campaign, The State Theatre LLC withdrew its renovation proposal from the HDC, and the group started negotiating a deal with the Michigan Theater Foundation.

A file photo of the Michigan Theater on Ann Arbor's East Liberty Street.

“After months of negotiation, the State Theatre owners are pleased to announce that the State Theatre will continue to serve as a home to movies,” Chaconas said in a statement.

Added Collins, in an interview with The Ann Arbor News: "We had folks that were passionate about maintaining the theatre. We had to figure out what was affordable and the State Theatre owners had to figure out what made financial sense to them. We were able to have a successful conversation that has resulted in this purchase agreement."

The State Theatre is known for playing new independent films and midnight showings of older classics. The theater was designed by architect C. Howard Crane and it opened in 1942. The building was purchased in 1987 by Borders co-founder Tom Borders, who later sold it to The State Theater LLC.

Michigan Theater, now in its 87th year, has provided programming and marketing services for the State since 1997, but the Michigan Theater never before had an ownership stake or responsibility in the State Theatre’s business or venue management, a news release says.

Signing a purchase agreement Monday afternoon was the first step toward the Michigan Theater taking over business operations of the State Theatre. The deal is expected to close in September after a 60-day due diligence period.

“We have thought long and hard about this opportunity and now, before the final closing, we will closely examine the property and work with the current owners to prudently finalize this deal for the benefit of our community,” said Michigan Theater Foundation Board Chair Alec Allen in a statement.

Collins said there will be a fundraising effort before improvements can be made to the State Theatre. Fundraising, design of improvements and eventual construction are expected to take place within the next 14 to 30 months, the release says.

Improvements will include: installing an elevator and addressing other accessibility issues, and transforming the theater from a “well-used 1940s film theater into an outstanding 21st century digital cinema.” Collins said the seating and viewing comfort at the theatre will be improved.

“An enormous amount of work needs to be done at the State Theatre to meet contemporary code compliance for accessibility as well as audience demand for an excellent movie-going experience,” said Lee Berry, the Michigan Theater’s chief development officer, in a statement.

“Fortunately, we live in a generous community that recognizes the value of preserving historic architecture and downtown vitality as key factors contributing to our quality of life. We look forward to conversations with everyone who might consider a pledge to help us preserve the State Theatre as an Art Deco treasure and make it a state-of-the-art cinema center," he continued.

Lizzy Alfs is a business reporter for The Ann Arbor News. Reach her at 734-255-2638, email her lizzyalfs@mlive.com or follow her on Twitter.