Ahead of an important Feb. 3 “Town Hall” meeting by developer Port Blakely Communities — where concerns over completing a long-awaited shopping district have raised local ire — The Reporter takes a close look at some of the events that have brought development in the Issaquah Highlands to a halt, and what is expected in the months and years ahead.

This article is part one of a two part series.

In the 1980s, a large timber company, and the civic leaders of Issaquah, saw a unique opportunity to achieve what was a rare shared interest: a sustainable community. However, the vision that drew thousands to the hilltop neighborhood that is now the Issaquah Highlands over the last decade remains largely unfulfilled.

The policy of anti-sprawl sprawl: The Growth Management Act

The stage for a new concept of suburban development was set after the state, and King County in particular, began to experience a population boom in the early 80s. After the housing sprawl and traffic gridlock that followed, county and state governments moved to impose limitations on the land-use planning process. The result was the Growth Management Act (GMA), passed in 1990, which strengthened rural and natural resource area protections, while encouraging cities to direct most of their population growth in urban areas, and identify areas of potential long term growth.

Ava Frisinger, a member of the Issaquah City Council at the time, and now Mayor, said she took part in many discussions on how Issaquah — then a town of 7,786 residents — could meet the growth targets set for King County.

“(We) had an opportunity to have really dense development,” she said. “Something that would be a ‘live-work-play’ environment.”

Issaquah also faced challenges in securing enough drinking water for the quickly growing city, which was also trying to plan for several other residential developments such as Providence Point and Klahanie.

Frisinger said it was unlikely the city could have supported building sufficient water resources and a new water main, a major infrastructure project, without private investment.

“It would have been difficult to achieve those growth targets within the boundaries of the city,” she said. “Our city limits are constrained by steep wooded hillsides, that we wished to retain, and a significant part of valley floor lies in the flood plain.”

Meanwhile, Port Blakely Companies, primarily a timber company with a long heritage in the Pacific Northwest, was seeking to capitalize on several real estate investments made after the company had purchased property from the Glacier Park Company.

One of those investments was the approximately 2,200 acres of Grand Ridge, a wooded hillside directly to the east of Issaquah, pockmarked by a large gravel pit and old coal mine shafts.

The company started a new real estate development division, Port Blakely Communities. One of the first things they did was hire a man by the name of Judd Kirk. Kirk has since become one of Issaquah’s most well-known citizens.

“This was our first main real estate development project,” Kirk said. “The disadvantage was we’d never done this before. The advantage was we weren’t encumbered by the way the industry wanted us to do it.”

So Port Blakely Communities, with the assistance of a public process that helped shape their a vision of a new community, began designing a self-contained neighborhood that was a response to a growing dissatisfaction with the suburban sprawl of the 80s the GMA sought to contain. They saw the way to profitably, and those long-term goals, was first and foremost to build densely.

So they built smaller homes and retail space on smaller lots, used recognized green building and energy efficiency standards, and dedicated walking paths, parks and open spaces throughout the community.

In company advertising, the company claims a “total commitment to living green.” To give the developer more flexibility in achieving their goals, a private-public partnership was established in the form of a development agreement with the City of Issaquah. The city sought to strike a balance on a certain ratio of residential (3,250 units), retail (495,000 sq. ft.) and office development (2.95 million sq. ft.).

With a patient investor concerned about quality on it’s return and a city focused on growth, it was hoped the power of the marketplace would drive homebuyers and businesses to their door. The first residents moved to the master planned community in 1998. Eleven years later, the residential development in the Highlands is nearly 75 percent sold or leased.

But the other part of the Highlands equation, the office and retail, has been subject to the vagaries of the marketplace more than Port Blakely or the City of Issaquah would have wished.

Anchor tenants, supermarkets and Microsoft get cold feet

As manager of the city’s Major Development Review Team, Keith Niven is the city’s point man on managing the implementation of the city’s various agreements for master-planned communities. Issaquah Highlands is his biggest project, and at times, his biggest headache.

“Actually, I’m more like the Ghost of Christmas Past,” he said, referring to his role in trying to adjudicate interpretations of past agreements on how land-use development there can proceed.

After the economic recession began to take hold in late 2007, there’s been a growing number of these amendments to the city/Port Blakely agreement, including a new Swedish Hospital Medical Center, a self-storage business, and a gas/energy station.

Niven said that before the recession, grand plans for retail and economic development were put before him and his staff several times, but those plans were rarely completed.

In 2006, Port Blakely thought it had secured the final piece of the retail puzzle in a shopping development project with partner Opus Northwest called The High Streets, which would have taken up four large city blocks.

Port Blakely President Kirk was so confident the development would succeed, his company moved ahead with building new roads and laying utilities for the new retail district, before handing over the keys of his office to his successor, Alan Boekler.

“The fall of 2008 was the target date (for completion),” he said. “We put in the roads and the walls much earlier than other developers because we wanted to keep them on schedule.”

But things didn’t go according to plan, and one shop after another backed out of plans to rent retail space in Issaquah’s first planned “lifestyle center” shopping area.

“Retailers really started feeling the recession about a year before we did, in early 2008,” said Niven. “There’s a fickleness to retailers. They all want to be together in the most modern, most trendy center.”

Opus Northwest Vice President Tom Parsons referred questions from The Reporter about the High Streets project to Port Blakely without further comment.

One large stumbling block in the stalled development can be attributed to the whims of one of the region’s largest employers, Microsoft. In 2002, Microsoft purchased a large parcel of land in the Highlands and grabbed options on two others, preserving the right to develop the vast majority of 90 acres of office space there.

Plans and permits were given and work began on their site for a vast office park. An economic powerhouse, Microsoft’s anticipated tenancy was a huge coup. But as time wore on, nothing materialized. Options on two of the parcels were released back to Port Blakely in 2005.

But perhaps the largest disappointment has been three failed attempts to bring in a large supermarket anchor. Kirk said the company has an agreement with a fourth supermarket and will make an announcement in March.

The High Streets deal eventually collapsed in 2008, but the empty lots and streets remain in place — including an Opus Northwest site management trailer – as if construction was only days away.

“Retail always comes last,” Kirk said.

Frisinger, reflecting on some residents’ complaints of no retail services in their neighborhood as well as their own stake in giving up control of the planning process, reluctantly admitted the city might not follow the same type of development agreement in the future.

“One could say that residential growth could have been phased not to happen until retail or commercial development would have happened,” she said. “That isn’t the way we did it. But it’s not very productive spending time wondering what we could have done in the past to prevent this.”

In the aftermath of the economic downturn, and a declining interest in new retail centers, Boeker was forced to refocus on piece-meal, incremental development of the Highlands Town Center.

The Park Pointe TDR

Another complicating factor in the overall vision of the Highlands is that its overall size hasn’t yet been determined, because of a foundering development elsewhere in Issaquah.

Once approval of the Issaquah Highlands moved forward, a number of other master-planned agreements began to emerge from City Hall, including Park Pointe. While development in the Highlands began in 1996, Park Pointe remained stalled and city plans for the area began to shift, eventually resulting in a proposal for a Transfer of Development Rights (TDR) agreement for the area with Port Blakely.

The TDR would allow for expanded development in the Issaquah Highlands while preserving the natural resources of the Tiger Mountain property.

So far, Park Pointe owner Wellington Park Pointe has expressed interest in a TDR but has reached no agreement.

Likely the result of the economic downturn, Wellington defaulted on loans to Regal Financial Bank and declared bankruptcy in 2009, trying to protect their investment at Park Pointe.

“There’s a very good chance it could work this time,” Kirk said, referring to the possibility of a TDR deal between Port Blakely and whoever will own Park Pointe.

Niven, watching from the sidelines, said the valuation of $29 million for the Park Pointe property was too high, and hoped at some point a deal could be reached at a lower number.

The city is a small player, he said, but can play a crucial role with a TDR agreement.

Wellington will now have a difficult time finding a partner to develop Park Pointe, given the stricter lending standards in a risk-averse market.

“It’s a little bit upside down right now,” Niven said. “It’s hard to convince anyone that you can develop that property right now and make money there.”

Because of declines in real estate values, the property itself is also probably worth much less at a market rate, and so a development rights swap in 2010 is worth much less than when it was proposed in 2008.

Niven estimated a swap of rights to develop 35 acres of Issaquah Highlands open space was a likely scenario, and the city has applied to the county to move the Urban Growth Boundary to accommodate the proposed development there.

The county meeting on revising its comprehensive plan was held in Issaquah on Jan. 28, after The Reporter’s deadline.

Company shake-up

With a shift to a more pragmatic approach, Port Blakely Communities have announced their latest change in focus.

President Alan Boeker is stepping down after two years at the helm.

René Ancinas, President and COO of parent company Port Blakely Companies, has assumed responsibility for the company’s real estate division, while former Port Blakely Communities President Judd Kirk returned to the project as a “senior advisor.”

In a news release on the company’s Web site, Port Blakely highlighted some of Boeker’s achievements during the economic recession, including more residential development in the form of Block 24 and the YWCA Family Village, and the sale of land to Swedish Hospital.

“Most important, he stabilized the project amidst a tough and unforgiving economy, which laid the foundation for us to be able to move forward with a partner,” the release stated.

Boeker’s resignation signals a shift in strategy for Port Blakely as they pursue a joint venture partner to complete development of the Highlands Town Center. According to Kirk, the company is changing its business plan and envisions a reduced role in future developments, effectively moving away from the development business for the foreseeable future.

Major development will remain on hold until they can find another partner who will take the lead in building retail properties.

“We’re still committed to the long-term and original vision of the Highlands,” Kirk said. “Our sole focus now is Issaquah Highlands, and to finish building it.”

Kirk listed the community’s primary goals, which still include mixed use development, a pedestrian oriented center that meets the daily needs of residents, and a focus of community activites. When asked about a proposal to build a gas station — which is presently not permitted there — he said the discussion is still ongoing and residents would have an opportunity to address Port Blakely’s plans at an upcoming town hall meeting in Blakely Hall on Feb. 3.

“We will at some point go back to the City Council in February,” he said.

Next week: In the second article of the two part series, Kendall Watson will examine what deals are on the table at present, their options for the future, and the constraints they will need to avoid if the Issaquah Highlands is to live up to its promise.