The City of Edmonton collects rent from an adult peep show located in a rundown area of downtown because the business is located in a building it purchased in 2007 for an urban renewal project.

According to documents, the city purchased the building near Jasper Avenue and 96th Street for just over half a million dollars to make way for the proposed Quarters Development, which aims to revitalize the rundown and largely vacant area by building condos, stores and parks.

"The reason we bought that place was because as the landowner, it puts us in a much better position to work with the tenant to try and encourage the tenant to move on," said Walter Trocenko, the city's manager of housing.

Centrefold had a lease with the previous owner when the city purchased the building and it has to be honoured, Trocenko said. He could not reveal the terms of the lease.

City officials never intended to collect rent from the owner of a peep show, said Jane Batty, one of city councillors for the area.

"When we bought the building, the idea was to have the peep show move elsewhere," Batty said.  "But they did have what I understand was a bit of an ironclad lease within the facility and we have to honour that."

The building housing the peep show isn't the only controversial property in the area the city has purchased or is purchasing in the name of urban renewal.

Last week, it was revealed the city is finalizing a deal to buy the York Hotel, which is appealing the city's cancellation of its nightclub licence. The city has alleged the property owners have done little to curb and report criminal activity on the site.

The city wants the York Hotel and an adjacent piece of land for Boyle Renaissance, another project proposed for the downtown east area, which would include a community centre and create hundreds of housing units for homeless people.

With files from Tim Adams