The Forest Cafe building in Bristo Place is being sold off following the collapse of owner Edinburgh University Settlement (EUS), which went bankrupt at the end of last month.
Volunteers and staff have been fighting to retain it as an arts venue and have launched a fundraising campaign to try and buy the building, valued at around 1 million.
But potential developers are also looking to get their hands on the city centre building. Architects firm Eidyn Architects, based in Picardy Place, have applied to the city council for change of use for the listed building to turn it into ten bedsits, three private flats and space for business lets.
Chris Rae, one the firm's partners, said it was "early days" and no decisions had been made as to the future of the building. He said: "We have looked at what the building could potentially be used for to see if somebody would be interested in developing.
"We are speaking to a couple of developers who might be interested in buying it."
But campaigners fighting to retain the Forest Cafe as an arts centre have said it would be "terrible" if the building was lost to homes.
Chris Palmer, co-founder of the Forest Cafe, said: "This idea sounds terrible, quite frankly.
"It seems like total nonsense, but it is to be expected as this is what people are going to try to do with the building.
"The last thing we need is for a grass-roots venue space to close in Edinburgh. In August the city is alive for arts, but outside of that there's not so much going on and it would be a shame to lose the Forest, especially with the Roxy closing.
"All of us at the Forest Cafe would love it if everybody could object to this application to convert the buildings into apartments and bedsits."
Since staff at the Forest Cafe launched the fundraising drive three weeks ago. They have raised more than 8,000 towards their cause. Mr Palmer added: "Our fundraising campaign is going really well although it's early days.
"We have registered our interest in buying the property, although we obviously haven't raised enough money to buy the building yet.
"We have only been reaching out to the grass roots people so far so we've done quite well in the three weeks since our campaign started."
The EUS charity, which operated a number of community learning programmes and commercial enterprises including the Roxy Art House, has made most of its 40 staff redundant and has not even paid them for the last month they worked.
The Forest Cafe had been leasing the building from EUS for a number of years.
Staff have set up a donation page on www.theforest.org.uk and will be holding a public meeting at the venue this Sunday at 7pm.