Looking for a plane B

In 2005, Pat and Jan Cavanaugh embarked on a plan they hoped would bring their family's pioneer heritage into the future.

The couple, who spent most of their lives running a family hardware store, wanted to transform their downtown Auburn property into a $20 million development with condos, a hotel, a waterpark and plenty of room for an old-time hardware store.

They joined forces with Plan B Development, the company that would later launch a similar project in downtown Kent. The Cavanaughs hoped their investment would breathe new life into the property — a strip of downtown real estate the family had slowly acquired since the early 1900s.

The Auburn project was to be the cornerstone for the city's downtown-redevelopment plan. Plan B's condo-hotel-parking garage in Kent was to be a bridge to connect struggling historic downtown with thriving Kent Station.

Now, with both projects stalled, the Cavanaughs and both cities are looking for ways to finish the projects and move ahead with their development plans.

Great in theory

In Auburn, city leaders called it a "catalyst" project, the perfect high-profile building that would give Auburn the boost it needed to get investors interested in the city's downtown master plan.

The Cavanaughs called the development "Project Ace." It was to be a six-story hotel, condo and water park with plenty of space for retail and a parking garage.

The Cavanaughs say Bellevue-based developer Ben Errez, chief executive of Plan B Development, pitched the concept.

Errez, a former Microsoft employee who became a builder, was working on at least one other hotel project in Ocean Shores, Grays Harbor, at the time. The Cavanaughs say they were impressed with his vision and passion for building.

In December 2005, Errez and the Cavanaughs formed a partnership, Auburn ACE Holdings. The Cavanaughs say they contributed $3 million in cash and land, which is still tied up in the Auburn project.

Around the same time, Errez was working in a similar partnership with private land owners and the city of Kent to build a hotel, condo and water-park development in downtown Kent.

Kent agreed to swap land in exchange for additional parking in a garage that was to be built on the site.

The developer dubbed the site "Project Springboard" because it would link Kent Station's high-end chain and boutique stores to merchants in the historic downtown.

In her 2007 State of the City address, Mayor Suzette Cooke called the project a positive economic and social addition for downtown Kent.

The partnership between the Cavanaughs and Errez soured months ago. The Cavanaughs say they stand to lose the property and money they put into the project.

Since construction began, their hardware store has been in a temporary location. The city has pressured the couple to fix up the property or risk fines.

"We needed to get out"

Exactly how both projects came to end is unclear.

In April, Errez told The Seattle Times that securing financing had become a hurdle in both projects, but he said he planned to follow through and finish them. Since then, he has not been available for interviews and stopped returning phone calls.

From December 2005 until May 2007, the partnership, Auburn ACE Holdings, borrowed about $5.5 million to pay for the project, Pat Cavanaugh says. It used the Cavanaughs' property as collateral.

In July, the partnership was to begin paying more than $100,000 a month on the loans, payments that haven't been made, Pat Cavanaugh said.

"I couldn't throw more money into this project," he said. "We needed to get out."

By that point, only a small portion of the project had been completed — a two-story parking garage with retail space the Cavanaughs have been using as the temporary home of their hardware store.

Coming to a halt

In Kent, crews had stopped working on the parking garage in May because they said they had not been paid for their work. Construction has not resumed.

As part of Kent's deal to provide the land, the city wanted the right to buy foreclose on the property if the project were to fail for any reason, said Ben Wolters, the city's economic-development director.

The city hopes Plan B's lender and the contractor work out a deal to finish the project, but if they don't, the city will step in and exercise its right to take over the site, Wolters said.

Dave Baron, economic development manager for Auburn, said valuable lessons have been learned from the Project Ace and Project Springboard sites.

Thorough research on Plan B's finances and past projects might have prevented investors from partnering with the company. Legal agreements that offered protection in the case of a bailout, as Kent added, would have been a safety net.

Because development is inherently risky, failure is expected.

"You have to be smart in terms of how you manage risk," Wolters said. "Just because it didn't turn out the way we hoped, it doesn't mean it won't happen."

Other work continues

In the meantime, other projects in Kent are moving forward:

• Town Square Plaza, a 35,000-square-foot city park, is under construction at Second Avenue North and Smith Street next to the stalled project. The $3.4 million park is to open in June.

• Kent Events Center, a 6,025-seat sports arena being built on James Street, will be home to the Seattle Thunderbirds hockey team. The $73.8 million events center is to open in January 2009.

• Green River Community College at Kent Station is to begin its expansion project this year.

In Auburn, several projects are planned:

• Auburn Regional Medical Center plans to build a new oncology unit and a three-story parking garage downtown. The hospital has not applied for a building permit.

• City leaders plan to use the Main Street block in downtown Auburn known as "Tavern Row" for a three-story retail and office building. Part of the building would become a City Hall annex.

• Auburn is talking with developers to build retail and residential buildings on three blocks surrounding the "Project Ace" site.

What's next?

The Cavanaughs and Errez have an arbitration hearing with a judge scheduled for later this month to determine the future of the property.

The Cavanaughs realize that new plans for the project might not include space for their hardware store.

Mayor Pete Lewis says the Cavanaughs were pivotal in bringing attention to the city.

"They stepped out before everyone else to get attention to our city," Lewis said. "It's not their fault their developer did not follow through."

From the top of their two-story parking garage, the Cavanaughs point out the blocks surrounding their property and the new projects expected to begin in the coming months."If nothing else comes of this, at least we helped get all of this started," Jan Cavanaugh said.

They say they have learned a hard lesson and even though they could lose their property to foreclosure, they choose to remain optimistic.

"We have no choice but to look to the future," Pat Cavanaugh said. "You have to be optimistic in a situation like this."

Karen Johnson: 253-234-8605 or karenjohnson@seattletimes.com