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Originally published Sunday, March 6, 2005 at 12:00 AM

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Much up in downtown Mercer Island

In a town where the median price of a home tops $630,000 and residents include billionaire Microsoft co-founder Paul Allen, you might expect...

Times Eastside business Reporter

In a town where the median price of a home tops $630,000 and residents include billionaire Microsoft co-founder Paul Allen, you might expect a downtown full of gourmet-food shops, high-end restaurants and designer-clothing stores.

Think again.

Mercer Island's town center instead has 50-year-old strip malls, parking lots, chain supermarkets and a smattering of small businesses.

But developers are changing that, building 10 projects to create a lively downtown where people linger in outdoor cafes, attend concerts in public plazas and shop at street-level stores. Within three years, the town center will have nearly 900 new apartments and condominiums and more than 246,000 square feet of new stores and offices.

The center's development, worth at least $100 million, is a mix of apartment and condominium buildings and projects that combine residential and commercial space. The largest projects are four mixed-use developments along Southeast 27th Street:

Other island projects

Community Center: The City Council decided in 2003 to replace its 44-year-old community center. The new $13 million building will have a gymnasium, dance and fitness rooms, art-gallery area, child and adult day-care programs, a cafe and game room, and a multipurpose room big enough for 200 people. Construction began last summer and will be finished in December.

I-90 Expansion: The state Department of Transportation and Sound Transit started design work in January to add two lanes for car pools and buses on Interstate 90 between I-5 and I-405. The express lanes in the center of I-90 may remain, though plans call for them to become transit lanes for rail or express buses. Construction is expected to begin in summer 2006.

Mercer Island Boys & Girls Club: The club wants to build a $14 million teen center, field house, club and classrooms next to Mercer Island High School starting in the 2006-2007 school year.

Luther Burbank Park: Mercer Island took control of the park from the county two years ago and is putting together a plan for how the city will pay the park's $400,000 annual maintenance bill after a temporary maintenance levy expires in 2009. The city is looking at proposals including adding a restaurant, marina, or other business projects to raise money.

Source: The Seattle Times

• Island Market Square, five buildings of four or five stories with 210 apartments and nearly 40,000 square feet of stores and offices.

• The Mercer, a collection of three five-story buildings with 235 apartments and 18,000 square feet of retail and office space.

• Cohn Mixed Use, a collection of 185 apartments and 40,000 square feet of stores.

• 7800 Plaza, a five-story building with 24 condos and 10,000 square feet of retail space.

Two major issues sparked the downtown building boom:

Developers have returned, realizing they can make money there again.

And the state Growth Management Act (GMA) requires Mercer Island to provide enough homes, apartments and condos for at least 4,000 more residents in 10 years. With the island 95 percent built out, the downtown core is the easiest place to handle that growth.

What's affordable?

While the projects will bring housing to a city where many can't afford to buy a home, it's unclear how many of the new condos and apartments will be affordable. Many developers have not set rents or prices, and the few who have are offering units from $400,000 to $1.5 million.

However pricey the units end up being, the new developments promise to change daily life.

Residents fear the development — the biggest change on Mercer Island since Interstate 90's expansion in the early 1990s — will attract crime, increase traffic, harm the reputation of their schools and disrupt their quiet downtown.

"People are afraid of the unknown and they don't want to be inconvenienced," said Susan Blake, a former City Council member who has lived on the island for 50 years. "Six years ago, people were flapping their arms when the city was tearing up streets and improving infrastructure, but now they've gotten used to it and settled down."

Taking another look

Commercial developers have largely steered clear of Mercer Island because its detailed design code and lack of available land makes building there prohibitively expensive. Downtown property owners didn't want to invest money in redeveloping their properties when there wasn't great enough demand for office and residential space near Seattle to cover their costs.

The Cohn family has owned more than 5 acres in downtown Mercer Island for the past 40 years and wasn't interested in selling or redeveloping their properties because they earned a stable income from rentals in their strip malls.

"I knew what was here wouldn't last, but we were content to be a landlord for a while," said Steve Cohn, who owns the 2.6-acre site where Island Market Square is being built.

But the improving economy, more demand for office and residential development, and decades-low interest rates have brought developers back.

Many property owners started rethinking when the city contacted them about the development plan it was putting together for the town center. High prices — and potentially high profits — have compelled some to redevelop their properties or to consolidate parcels and sell to builders.

In the past two years, land values have doubled in Mercer Island's town center and now range from $50 to $60 a square foot, said Harley Hoppe, owner of the Mercer Island real-estate appraisal firm Harley Hoppe & Associates. The highest sales price in the past year was $80 a square foot for the 0.3 acre site on Southeast 27th Street where Starbucks built a drive-through store.

Although David Hoy, president of HMI Real Estate, lives and runs his business on the island, he didn't build any of his apartment or condo projects there. But in the past three years, as landowners have rethought development, Hoy found enough land to build two apartment and condo buildings.

Last month, he bought a 0.35 acre site on Southeast 27th Street for a five-story condo, office and retail project. "It was a once-in-a-lifetime opportunity," Hoy said.

Even with rising land prices, developers can afford to buy because of decades-low interest rates on construction loans.

"Low interest rates give us a third more buying power," said Michael Christ, president of Seco Development in Renton, which is building Island Market Square. "We were able to absorb the costs of land, but without [low rates], we wouldn't have been able to go forward."

Still, Mercer Island's prime location — a 10-minute drive from Seattle — and high-end reputation are reason enough to build, developers say.

Forced to grow

Island officials started planning early for growth. In the 1970s, the city created a design commission, which regulated building appearances, setbacks and size and called for a mix of multifamily housing and commercial development downtown.

"We had big vacant lots downtown," said Judy Clibborn, Mercer Island's former mayor and now a state representative. "There were leaves blowing down the street on 78th and absolutely no cars."

Downtown businesses were closing or moving in the late 1980s, so the city asked developers, business owners, residents and landowners to brainstorm ways to revitalize the town center.

One big obstacle was downtown's two-story height limit. The city wanted to kick-start business downtown but didn't want to leave the design to chance.

"The city was crumbling around us. Restaurants came for six months and then left," said Peter Orser, a former City Council and planning commission member.

Out of those meetings grew Project Renaissance. The city-backed group held meetings to create a pedestrian-friendly downtown with plenty of street-level shops, offices and homes. But property owners didn't want to invest money in redevelopment.

Spurred on by the Growth Management Act — passed in 1990 to curb urban sprawl by requiring every city and county to plan for growth — the City Council worked with residents to come up with a town-center plan in 1994. Under the guidelines, most development would be concentrated along the I-90 corridor at downtown's northern edge and decrease toward the south.

Despite the changes, it took five years until the first project, Island Market Square, was submitted under the new guidelines.

"Government can't go out and tell developers to build," Clibborn said. "In a sense, we were greasing the skids, and it still didn't work."

Growing pains

Mercer Island is Seattle's gated community — a place where people move to get away from Seattle's crime, struggling schools and traffic jams.

Multimillion-dollar homes dot the island's coastline, BMWs and SUVs clog downtown parking lots and the median price of a home was $633,500 in January.

Sheltered by their money and Lake Washington, islanders live in a town where everyone knows everybody. It's a place where people wave to each other on the street, neighbors watch each others' kids and the police still remind people to lock their car doors.

But many residents fear all that comfort may disappear under the construction cranes. Longtime residents worry crime will rise, traffic will clog streets and the quality of their schools will deteriorate. Others think the projects are too large and will ruin downtown's village feel.

"I begged and pleaded with the City Council not to raise the [height] limit to five stories and keep it at three," said Jerry Gropp, an architect and 40-year island resident. "Tall buildings will change the scale of downtown. It's already destroyed the ambience."

Yet people who have moved to the island in the past 10 years welcome the changes. They say Mercer Island needs more restaurants, shops and services so residents don't have to leave the island.

"I can't think of anything more appealing than being able to walk out my front door and have all these amenities right there," said Liz Austin, an island resident who plans to move downtown when the projects are done.

Although opinion is hotly divided among residents — who have packed city meetings, written letters, and heated up the city's development hotline — city officials think residents will be happy once the town center is complete.

"They can scream all they want, but you don't hear a peep out of them afterward," Clibborn said.

The future

The development boom isn't expected to funnel much revenue to Mercer Island all at once. Over the next five years, the projects should bring the city around $150,000 in property taxes and provide additional sales taxes and permit fees.

Still, city officials never considered these projects a "pot of gold," City Manager Rich Conrad said.

"These projects are not big revenue producers and won't be unless a big shopping mall or Costco was built," Conrad said. "But the planning has always been about the GMA and how we can make downtown healthier and get more people to move there."

The real financial effect will be felt once retailers and residents move in.

The money would come at a good time. Mercer Island had to raise property taxes 1 percent — the city receives half of its revenue from property taxes — and trimmed some services to avoid a $1 million shortfall last year.

If the first projects do well and attract enough people and businesses, developers and city planners expect to see another wave of mixed-use building. Already, they're hearing rumors of other projects in the works.

"You will see a transition in the next five years," said Robert Thorpe, president of R.W. Thorpe & Associates, a Seattle project-management company.

"You're going to see Mercer Island become a lot more like downtown Bellevue or Kirkland."

Kristina Shevory: 206-464-2039 or

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