Councillors in Perth and Kinross are due to consider the proposals for Perth City Hall this week but a report by commercial property experts Jones Lang Lasalle questioned the plan after saying there was no evidence that funding was in place.
Perth City Market Trust (PCMT), backed by the Prince's Regeneration Trust, had applied for planning permission to transform the building after Historic Scotland blocked a plan by Perth and Kinross Council to tear it down and replace it with a new £4 million civic square.
But the proposal - which is the only one on the table - looks likely to be rejected at the meeting on Wednesday, paving the way for the local authority to once again apply for permission to demolish the listed building.
PCMT said it was disappointed by the verdict from Jones Lang La Salle, adding that it was not unusual "by any means" to seek public funding for capital works.
Ros Kerslake, Chief Executive of The Prince's Regeneration Trust, added: "Our aim is to work with the local community trust, Perth City Market Trust, to restore and adapt the building so it can be a hub for local people and local produce."