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Sunday, April 27, 2003 - Page updated at 12:00 AM

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Paul Allen's major makeover offers high risks, huge payoffs

Seattle Times staff reporters

South Lake Union is the city's garage, a half-ignored place where Seattle has crammed stuff for 100 years. Tired storefronts hold sewing machines, car parts, used furniture, exercise equipment, trophies and plaques, hiking boots and basketballs. Some 86,000 cars a day punish Mercer Street, leaving oil and tire tracks in their wake.

All this was fine for the scrappy neighborhood that less than a decade ago fought a plan to replace many of its small businesses with a 61-acre Seattle Commons park.

But it's all changing.

Paul Allen, the Microsoft co-founder and the world's fourth-richest man, is turning South Lake Union into something more like a loft for the creative class: a waterfront neighborhood in the shadow of downtown skyscrapers where scientists work to cure diseases; where architects, artists and engineers pack hip watering holes; where apartments come with kayak lockers and P-Patches on the roof.

Detailing the proposals


More about South Lake Union proposals such as the streetcar, waterfront park and UW's biotech campus:

· UW, Vulcan to create biotech campus in South Lake Union

· Nickels proposes streetcar

· City Light to spend $200 million powering up area

· Paul Allen woos big tenant from Pioneer Square

· Merck to join biotech hub

· Children's Hospital to move research arm to Vulcan property

· Foundation struggles to raise money for park

· Vulcan demolishes Lillian apartment building

· Profile of Vulcan's top real estate executive

· Gates gives $70 million for genome work at UW

Allen's plan calls for 10 million square feet of laboratories, offices, apartments, condominiums, hotels, stores and restaurants — a redevelopment nearly seven times the size of Seattle's tallest skyscraper. Much of it would be sandwiched between a new University of Washington life-sciences research campus and The Fred Hutchinson Cancer Research Center, and it would transform more than just the landscape.

The city wants up to $570 million for streets, sewers, power lines, parks and a streetcar to support the anticipated growth — a controversial investment for a city going through its worst budget crisis in 30 years. Mayor Greg Nickels is staking his political future on helping Allen succeed.

The risks are plenty, but the payoff could be huge. Allen's developments could bring 20,000 jobs and turn biotechnology research into an industry that redefines the Seattle economy the way Allen and Bill Gates did with software in the 1990s and Boeing did with airplanes in the decades before.

For a city stung by layoffs, the loss of Boeing's headquarters and a nagging sense that its day in the sun has past, Allen's plans promise something nearly irresistible: a new neighborhood, a new economy, maybe a new identity.

It won't be easy. "Anytime you propose something bold, people take shots at it," said Paul Schell, a former developer who launched a $600 million public-building campaign as Seattle mayor and lost his re-election bid. "Change has no political constituency in this town."

Controls 50 acres

About 900 people live in South Lake Union, many in low-income apartments in the Cascade district east of Fairview Avenue North, where many of the 8,000 to 10,000 apartments and condos would be built.

During the past decade, Allen's company, Vulcan, has spent about $200 million buying real estate in the neighborhood. He controls 50 acres, the largest amount or land a private developer has assembled in the city for a century.

The company has announced plans to spend $456 million building the first nine projects. Three are under construction: a new headquarters for Rosetta Inpharmatics, research space for Seattle Biomedical Research Institute and Children's Hospital and Regional Medical Center, and the 162-unit Alcyone apartments.

But that's just the start. Over the next 15 years, the company plans five times as much development. It is pushing the city to reconnect streets across Highway 99, transform the "Mercer Mess" into a pedestrian-friendly boulevard, and build a 2.5-mile streetcar line from downtown to the new South Lake Union park.

While Allen would not discuss South Lake Union plans, he shared his philosophy at a recent press conference announcing his science-fiction museum.

"Seattle is my hometown, and when I think of doing new institutions, I think of Seattle first," Allen said. "I and my family do look at ways to do things here in Seattle and give back to the community."

The seed

The plan began with a $21 million whim.

In 1991, Allen crossed paths with Joel Horn at a business meeting to discuss issues surrounding the satellite-television company Allen controlled. Horn, a businessman and budding civic activist who now heads the Seattle Monorail, was obsessed with the idea of the Seattle Commons, a sprawling park that would run from downtown to the Lake Union waterfront and be ringed by housing and commercial development.

Horn even carried around an aerial photograph of the neighborhood to pitch the idea to anyone who would listen. During their meeting, Allen couldn't help but ask Horn about the picture. Horn gave his spiel.

Allen "was quite taken with the idea," said Gerry Johnson, managing partner at Preston, Gates & Ellis, who worked closely with Horn on the Commons. Allen became its chief financial backer, loaning millions to buy 11 acres in and around the proposed park. Allen agreed to donate the money if the Commons passed. But voters rejected the $312 million park plan in 1995 and a smaller version in 1996, leaving Allen the 11 acres.

The go-ahead

For the next two years, much of Vulcan's attention was consumed with buying the Seattle Seahawks and replacing the Kingdome.

"At that point, the insiders thought Allen had this awkward property on his hands and would just bail on it," said David Brewster, a longtime political observer and executive director of the civic and cultural center Town Hall.

Then Jim Klinger entered the picture.

Klinger, a real-estate broker who worked for The Hutch and the Seattle Commons, figured the commercial market was building toward a frenzy. Land in the neighborhood was cheap, and the zoning was right. A developer with deep pockets and a vision could do something big.

Klinger approached Vulcan in late 1997 to gauge the company's interest in expanding its South Lake Union holdings. Encouraged by the response, he spent a week over Christmas collecting page after page of information into three large binders he called "the bible."

In early 1998, Klinger met with Larry Martin, then Vulcan's new head of real estate. His advice: "If I were you, I would get more dirt." Martin met with Allen and other executives. Klinger was told to go forth and buy property.

Offers made

By 1998, neighborhood leaders began drafting a plan to guide the growth expected over the next 20 years.

"(The plan) takes a realistic view of development that will undoubtedly occur, which I'm sure gave (Vulcan) some comfort," said Mike Foley, a property owner who led the fight against the Commons and helped draft the neighborhood plan. "So (Vulcan) made the commitment, and once they did, they were the big gorilla."

Landowners had fought the Commons in part because they were afraid the city would take their property and pay them little for it. But Allen offered top dollar.

The real-estate market in Seattle was heating up when Klinger started calling owners of the choicest properties. Some said no, but many listened to the pitch.

"When I would go in and present an unsolicited offer, they would say it is more than it has ever been worth before," Klinger said.

Sometimes he heard back from the landowner immediately. Sometimes it took six months. But he had a standard response for owners willing to sell: "I have an offer in my briefcase, and I'll be over in 20 minutes."

Deals struck

Allen spent lavishly for land from 1998 to 2001, snatching up the former Washington Natural Gas properties on Mercer Street, much of the waterfront and dozens of parcels throughout the neighborhood.

Then the city announced it would sell some of the most valuable real estate in South Lake Union. The land, the better part of the three blocks between Valley and Mercer streets, forms the gateway to the neighborhood. It sits just off the water, overlooking the city's new park and Allen's marinas.

One hundred forty-five people asked for more information. Two submitted proposals: The Nordic Heritage Museum, which wanted one of the properties, and Vulcan, which wanted them all.

There was little suspense about who would buy the land. On the recommendation of the city's Office of Economic Development, the City Council decided it would have more control if the properties were sold to one developer instead of several.

Vulcan agreed to pay $20.2 million for the property, and the city promised to plow most of that into improving Mercer and other roads. The City Council approved the sale with few questions, and the deal seemed to cement a relationship with Vulcan that has blossomed as plans for South Lake Union have turned into buildings.

A research hub

As far back as 1985, then-Mayor Charles Royer suggested that South Lake Union become the city's research hub for life sciences. It was perfectly located between the University of Washington Medical Center to the north and Harborview Medical Center to the south.

By the time Allen started buying property, two of the region's biggest names in biotechnology — the Fred Hutchinson Cancer Research Center and ZymoGenetics — were well-established nearby.

Allen, too, was deeply invested in the industry, owning stakes in dozens of public and private companies. He was especially interested in computational biology, using high-powered computers to help develop drugs faster. Allen's successful 1982 battle with Hodgkin's disease, a potentially deadly lymphatic cancer, may be a big reason for his fascination with biotech.

"Biotech does represent something of great importance to Vulcan's founders," said Jim Kelley, a Vulcan consultant and former employee. "If you look at their track record of charitable giving to medical science and life-sciences research, it has been enormous."

Vulcan has landed all but one of the major biotech companies looking for space in Seattle, including the most important of all: the UW School of Medicine. The school received $431 million last year in federal grants for life-sciences research, placing it among an elite group of institutions. But UW needs more laboratory space to keep the money coming in.

Last week, the school's Board of Regents approved a plan to build on Allen-owned land up to 750,000 square feet of lab and research space for life-sciences research. The campus eventually could cover two blocks on Mercer Street and Dexter Avenue.

Vulcan's reach isn't limited to the land it owns, and it is not entirely focused on biotech. The company has joined with one of the area's other major landowners, Pemco Insurance, to assemble a block that will be home to architecture giant NBBJ.

Vulcan also has discussed co-development opportunities with The Seattle Times Co., which owns 16 acres in South Lake Union. Publisher Frank Blethen said the company has no immediate plans to build anything.

Allen: 'Wanted'

Last year, vandals plastered "Wanted" posters with Allen's face on walls and telephone poles in South Lake Union. The protest captured the unease felt by some residents and activists: Allen is missing from the neighborhood.

The billionaire is detached from the day-to-day development effort, and he doesn't attend community meetings or give interviews to build support for his plan. Many key business partners and neighborhood tenants say they've never met him. That desire to avoid the public eye sets him apart from other civic leaders.

"You don't see him at parties or at the symphony," Brewster said. "He is more mysterious. Allen is about range and impulsiveness and bright ideas that may or may not work out, and that is very different from Seattle's plodding Scandinavian style."

His absence from the neighborhood has fueled fears that he has little concern about how his plans would change lives there.

Activists have challenged Vulcan over historic preservation and elimination of a city alley for one development. But the fight last year over demolishing a run-down apartment building left the most ill will.

Housing groups charged that Vulcan purposefully trashed the 96-year-old Lillian Apartments so the city would condemn the building and the company could skirt regulations designed to prevent demolition of low-income housing. Vulcan said the neighborhood was better off without the 34-unit eyesore.

The case went to the city's hearing examiner in October but was dismissed after Vulcan's lawyers argued that the appeal was filed a day late.

"To me, this is the real Paul Allen, this is the real Vulcan," said John Fox, who has made a career of fighting developers as head of the Seattle Displacement Coalition. "It is, 'Set an objective and go out to get it. Use cooperation when you can. ... But when it doesn't work, marginalize and run right over them with attorneys.' "

Vulcan was clearly stung by the bad publicity surrounding the Lillian. Since then, it has emphasized gentler dealings in the neighborhood. The company and its partners, Harbor Properties and Schnitzer Northwest, contributed to neighborhood-cleanup programs, supported a park used by children at The Hutch and held open houses and community meetings about South Lake Union development.

"We have purposefully tried to be very transparent with a lot of the projects in the planning process," said Ada Healey, Vulcan's director of real estate. "We have tried to be respectful of the neighborhood's concerns."

Growing influence

As Vulcan's holdings have grown, so has its influence. Employees and people with close ties to the company sit on important neighborhood boards. South Lake Union projects are part of the work plan of nearly every major city department. At least four more developments are scheduled to begin this year.

It's a strange time for those who fought to preserve South Lake Union from the Seattle Commons. Allen's plans are infusing a new energy into the neighborhood, promising to raise property values while transforming the area.

Foley, the neighborhood activist whose family owns a block and a half in South Lake Union, questions the big-ticket plans to fix Mercer Street and run a streetcar through South Lake Union. But like other landowners in the area, he has thrown in his lot with Allen.

"If something is not in Vulcan's best interest, it is not in the neighborhood's best interest," Foley said, shrugging. "Maybe it will be a good thing. Maybe it will be a disaster."

J. Martin McOmber: 206-464-2022 or mmcomber@seattletimes.com; Bob Young: 206-464-2174 or byoung@seattletimes.com

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