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 two of a two part series.

Preparing for a Feb. 3 meeting to resume the role that has been so familiar to him, Judd Kirk made a few final edits to a map showing the latest plan to move forward in developing the Issaquah Highlands.

Nearly the entire swath of expected retail development has failed to build out, and to this day remains the area’s biggest challenge.

Kirk says he’ll try to reassure residents that the developer remains committed to finishing the office and business area.

He is currently in talks to land both another commercial development partner and a supermarket retailer, rumored to be Safeway.

Though Port Blakely would not reveal the name of the retailer, a spokesperson for Safeway confirmed ongoing discussions but said no deal was finalized at this time.

“We’re doing due diligence at this time,” Cherié Myers, Safeway director of public and governmental affairs, told The Reporter. “Hopefully, we’ll come to a decision soon.”

Kirk concedes the company will need help from officials at the City of Issaquah if a new approach is to succeed.

“We try to be as transparent and tell the residents as much as possible,” he said. “But it’s very difficult to explain the risk of something that might not happen.”

Are high rents turning off retailers?

There are many reasons why there are approximately 100 acres of empty lots on what should be a vibrant retail center.

Most agree that it was a combination of overconfidence, the economic recession and density. The decision to sell land to Microsoft without development requirements is another. (Over the past year, Microsoft has continually declined to comment on their plans for the Highlands.)

But Tim Weber, a vice president at commercial real estate broker First Western Properties, said he believed high real estate costs for developing commercial properties in the Highlands deserve part of the blame.

“The consumers there are just begging for more retail,” he said.

Weber said that national retailers prepared to approach Port Blakely with their own design plans for an anchor store are unwilling to pay a premium for land during the recession. For smaller businesses seeking leases in Issaquah Highlands, Weber described a deal he tried to negotiate for Emerald City Smoothies. He characterized the “very high” rates in the mid-$40s per square-foot, which don’t compare favorably to the 2009 average of $31.80 in downtown Seattle.

“The rates were going crazy,” he said.

While lease rates overall have decreased dramatically, Weber said a more recent estimate of cost per square-foot in town center area of Issaquah Highlands was still in the high-30s. He said prices seemed to be subsiding now, citing the “Block 24” apartment development deal he negotiated with partners DevCo and Port Blakely.

In response, Kirk vehemently disputed Port Blakely’s valuation of real estate was contributing to the lack of retail expansion there. He claimed the retail market validated previous plans when they signaled their intent to open in the now-defunct Opus Northwest project, and will do so again when the economy turns around.

“We’re very realistic on how we price the rents,” Kirk said. “Even if we set rents at zero for 10 years, the tenants wouldn’t come.”

Instead, he placed much of the blame on both the recession and restrictive guidelines laid down in the development agreement with the city, spelling out height limitations, parking limits and landscaping requirements. He said he hopes he can work with the city to find compromise within the agreement and help turn around his company’s recent financial losses.

“None of these things are a show stopper, but when you add them up, it puts us at a competitive disadvantage,” Kirk said.

That “disadvantage” could be part of the reason Port Blakely is now trying to open a Safeway in the community after years of trying to bring local retailers there.

Meanwhile, local businessman and Highlands resident Geoffrey Walker has also been reviewing plans to open his own pizzeria or entertainment center and bowling alley there, but has been repeatedly advised to avoid the underdeveloped Highlands town center because of its high cost and empty feel.

“People I’ve been talking to said it wasn’t built up enough yet,” he said. “I love the stuff that has come up so far — but it’s just not enough.”

Walker, who also serves as chair of the City of Issaquah Urban Villages Development Commission (UVDC), said he’s looking for a way the city and Port Blakely could work together toward compromise in the future, but wants to tie further residential development to commercial development targets, or “triggers” to avoid haphazard development.

“This was supposed to be for everyone in Issaquah and the surrounding community,” he said. “They were promised that it wouldn’t be a blight… but right now I see a big scar.”

Is increasing residential density the answer?

The Swedish Medical Center, viewed as the area’s best short-term hope of spurring ancillary retail and office growth in the area, is expected to provide over 1,000 jobs in the Issaquah Highlands by 2012 and create many other jobs from businesses looking to serve the hospital. But in order to spur even more retailers to locate there, both developers and brokers appear to agree the immediate challenge is to continue developing more residential density there.

“I believe you need more density,” said Weber. “Residential drives commercial real estate.”

A proposal to increase density, however, is worrying to Highlands resident Chris Hawkins. He has been following the development process closely, and is concerned about a plan using a Transfer of Development Rights agreement (TDR) with the Park Pointe property to potentially boost density in the Highlands to nearly 5,000 units.

“I don’t see why that forest is any better than my forest,” he said. “It’s my forest that might get logged.”

An empty-nester, Hawkins bought his home in the Highlands with his wife the day he first saw it in 2005, inspired by the magnificent views and natural environment.

He is supportive of Port Blakely’s efforts to create a community on the mountainside, surrounded by protected land beyond the urban growth boundary.

But he worries about the road infrastructure that was built to accommodate up to 3,950 cars, not 4,850.

According to Kirk and City of Issaquah Major Development Review Team Program Manager Keith Niven, the groundwork is being laid for a deal that could allow the transfer of development rights (TDR) from Park Pointe to 35 acres of Issaquah Highlands land to the south-west of Central Park, an area presently outside the Urban Growth Boundary (UGB).

In the deal, Park Pointe would be preserved as city park land – Port Blakely would buy the development rights on the Park Pointe property.

Port Blakely would agree to give the city the 35 acres south-west of Central Park, which is currently being considered for rezoning and inclusion in Issaquah’s UGB.

In return, the developer would be granted the right to add 500 residential units in what was once intended to be exclusively a business and retail area – the underdeveloped area around the Park and Ride and YWCA site. The vision for this site, initially laid out for the High Streets Shopping District project, will now be mixed use development similar to the recently completed downtown Mercer Island development.

The city has applied for the UGB to be shifted for the 35 acres southwest of Central Park, which could then be sold and developed with up to 400 homes, potentially reaching 900 additional units.

The total number of residential units could reach 4,850 if Port Blakely exercises their rights to swap commercial property for another 700 residential units.

“I’m just real skeptical this doesn’t increase traffic,” he said. “If this TDR goes through, this is really the first domino to fall. Eventually, there will be a whole lot more development up here.”

As an alternative, Hawkins suggests the city allow the 14-acre “lower bench” development by Park Pointe Wellington LLC — current owners of the Park Pointe land — of 251 homes, and buy up the rest of the property with money left-over from the Southeast Bypass fund.

In the Highlands, he said the county should only convert 15 acres to urban development for 100 homes.

He’s started a Web site (http://ih98029.us) and is suggesting residents contact King County Councilmember Kathy Lambert about the changes.

“I don’t think there’s many in the community that think 500 more units are good for our area,” he said.

Public comment on the Urban Growth Boundary proposed changes will end Feb. 12.

A vision of priorities

Issaquah has largely moved away from master-planned developments such as the Highlands.

Revisions to Issaquah’s comprehensive plan are moving forward with an ad-hoc Central Issaquah Plan Task Force developing recommendations on how to eventually recycle lower-density strip malls and parking lots in the valley floor with denser, mixed-use development.

But these changes are too late for some who identify themselves as part of the local environmental community. Wary but hopeful of initial claims by Port Blakely that hundreds of acres of forested hillside above Issaquah could be traded for a development that promoted a “green” lifestyle, several said their doubts were reinforced by a recent decision to push for approval of a gas station there. Linda Seebeth, a concerned resident on nearby Black Nugget Road, said not enough attention was being paid to how development of rural land was having a real impact on climate change, and planning decisions should begin to take those costs in to account.

“How many homes do we really need?” she asked. “We’re something like 30 years ahead of our growth targets.”

She maintains that fuel tanks buried under a gas station along Highlands Drive could pose a threat to local drinking water.

“If residents had solid, factual information to weigh, I imagine most Issaquah residents would choose to maintain the ban on a gas station,” she said.

That business use — euphemistically referred to as an “energy station” — is not allowed under current rules. Port Blakely has pressed the city to adopt another amendment to accommodate what they say is a genuine response to the needs of the community, and will likely ask for further modifications as they continue to court businesses.

In the final analysis, Issaquah Environmental Council member Connie Marsh said more public pressure was needed to push Issaquah Highlands to keep covenants unchanged that in her view are environmentally friendly.

She cited several examples of how plans were put forward to increase energy efficiency and reduce use of fossil fuels, but the opposite behavior was actually encouraged or enforced.

The examples she cited include a ban on using clotheslines to dry clothing, which essentially makes compulsory the use of energy-inefficient dryers, the lack of a public transit option linking the residential areas, and limitations on shade tree and foliage heights.

“In its current rendition, it’s not very green,” she said. “Everyone is so desperate to get something — anything — that they’re willing to compromise to get businesses in. I just don’t think that anyone is willing to stand up and say, we want it right.”