Mixed-use buildings bring mixed feelings

Developers have been putting up residential buildings near office buildings in downtown Seattle for years, hoping to attract empty nesters and young professionals who want to live within walking distance of their jobs, trendy restaurants and shops.

Now, a growing number of developers are putting condos and apartments inside office buildings as they try to capitalize on downtown's popularity as a place to live and work. Consider these three projects:

• Paul Allen's Vulcan Real Estate began work in November on 2201 Westlake, which will include a 19-story tower with 135 condos and offices in South Lake Union.

• Clise Properties plans to begin construction on Seventh at Westlake, a 32-story building with 181 condos and offices near the retail district.

• Opus Northwest will open M Street, a 17-story building with a grocery, 220 apartments and 39,000 square feet of medical office space in the First Hill neighborhood.

Because the buildings will have office workers during the day and residents at night, they'll never completely empty out, a potential selling point.

"You have this sense around the building that there's always activity," Clise President Richard Stevenson said.

But whether the buildings set off the next new development trend depends on the extent to which people embrace them, and that remains to be seen.

It hasn't caught on in Bellevue, where several mixed-use projects are in some stage of development. The Bravern is an example, with two proposed office towers plus two residential towers and retail space. None of its towers will combine offices and residences under the same roof.

Some say the number of people who want to work in a building where others live, or vice versa, is still relatively small. Although many towers have condos or offices above restaurants, drugstores and other retail stores, buildings with condos and offices are uncommon.

Schnitzer Northwest plans to begin construction soon on an office tower with no residential component at Ninth Avenue and Stewart Street.

"We've performed focus groups with office users and condo buyers in downtown Seattle, and both of them don't see any benefit of co-mingling," said Mike Nelson, senior investment director at Schnitzer.

"I know some [office] tenants who've toured our project and Vulcan's and questioned the value of having residences. They saw it as a distraction, which bodes well for us."

Developers say their buildings will have separate entrances and elevators to avoid awkward encounters between office workers and residents. At Vulcan's 2201 Westlake, for instance, office workers will enter off a different street from condo owners.

"People who live in the buildings are going to be in their sweats or whatever," said Leigh Callaghan, a commercial real-estate broker at Colliers International in Seattle. "They don't want to be mixing with people in suits. They want their privacy."

He believes the buildings will draw more people downtown, as long as they keep the co-mingling to a minimum.

"If you're an office guy, you don't want to be riding up an elevator with some sweaty person who just worked out," Callaghan said.

In Bellevue, developer Kemper Freeman plans to finish construction this year on a 28-story office tower at Lincoln Square, where there's already a Westin hotel tower with condominiums on top.

Freeman said condo buyers and office users want top-floor views, making it hard to satisfy both with a single building. Hotel customers, he said, prefer bottom floors, partly because of fire concerns.

"I don't think it's bad," he said of the office-condo combination. "I think the hotel-condo combination is better."

The combination is most apparent in downtown Seattle, which has more than half a dozen projects with offices and residences in the same building. One such building is the Millennium Tower, which opened in 2001 with 200,000 square feet of offices and about 20 condos.

Greg Smith developed Millennium Tower as part of Martin Smith Inc. and now, as a principal of Urban Visions, plans two buildings with offices and residences downtown. Unlike Millennium Tower, with separate lobbies for office workers and condo owners, each building would have only one lobby.

"I'd rather have people and energy than something that's empty," Smith said, calling notions that common areas must be separate "old thinking."

"In the past, Seattle was recognized as an eight-hour city. It's now turned into a vibrant, 24-hour community," he said.

The combination also helps developers maximize their profit.

In an effort to create a vibrant downtown, Seattle officials have rewritten zoning rules to encourage residential buildings in areas such as Belltown and the Denny Triangle.

Developers planning condos or apartments with offices get to build higher than if they had planned only offices. And the higher they build, the more money they're likely to make because it gives them more space to sell or rent.

Last month, Opus Northwest and Holland Development were paid $85.5 million for M Street by the Ohio State Teachers Retirement Fund, an indication that the combination has gained some acceptance among large institutional investors.

Bernie O'Donnell, senior project manager of M Street, said he expects some apartments to go to nurses working in the building. "Really, you won't have to leave the building if you don't want to."

The combination also allows developers to diversify their risk to some degree — if the condo market deteriorates, they might have better luck with offices — and it could mean they spend less money to provide parking.

M Street will have nearly 270 parking spaces, with many going to office users during the day and residents at night, said Tom Warren, president of Holland Development. The project would need more parking spaces without the ability to share them.

John McIlwain, a senior housing fellow at the Washington, D.C.-based Urban Land Institute, said he's not aware of many buildings with offices and residences being built elsewhere in the country. He suspects that Seattle's zoning laws, along with a strong commercial real-estate market, explain why at least three are planned for downtown.

Developers typically prefer to focus on office or residential projects based on what they perceive to be in demand at the moment, he said.

"There's no reason you can't combine the two," he said. "But office markets in many places haven't been that strong."

A recent study by the Urban Land Institute and PricewaterhouseCoopers identified the Seattle area as the top place nationally to own office property, primarily because of solid job growth, a diversified economy and trade ties to Asia. Office-vacancy rates in downtown Seattle have dropped to single digits, and rents are on the rise.

At the same time, more people are fed up with long commutes and want to live near work, said Alison Jeffries, senior manager of real-estate marketing at Vulcan.

Although 2201 Westlake hasn't signed any office tenants, Jeffries said she expects the condo component to be a strong selling point with employers who like the idea of employees living near work.

"It's a great benefit, because your employees aren't stuck on I-5 or at home when it snows," she said.

Mark Demry, a receptionist for the Puget Sound Regional Council at Waterfront Place, said he rarely runs into people who live in the building, which has 19 condos and 178,000 square feet of office space. Workers and residents are kept separate with distinct entrances and elevators, and he knows of no residents who work in the building.

But some residents have found that a building with 9-to-5 offices has advantages. Demry said he regularly accepts mail deliveries for residents while they're at work.

"I just do a good-neighbor thing," he said.

Amy Martinez: 206-464-2923 or amartinez@seattletimes.com