Deal reached over Lincoln Square

Developer Kemper Freeman Jr. yesterday announced a plan to take control of the stalled project, across the street from his popular Bellevue Square mall, and turn the corridor between them into a retail strip akin to Chicago's Magnificent Mile.


		Phil H. Webber / P-I
	The building under construction in downtown Bellevue's Lincoln Square will be a hotel when finished by Kemper Development Co.

The deal would give Freeman's Kemper Development Co. control of another key block along Bellevue Way Northeast and revive a $360 million project that has been a sore spot for the city since construction was suspended last year. Lincoln Square is slated to include two towers with condominiums, office space and a four-star hotel. It will also contain as much as 400,000 square feet of retail space and a parking garage with more than 2,000 spaces.

The addition of Lincoln Square will solidify the corridor's position as "one of the strongest retail corners in America," Freeman said. Restaurants and upscale stores, such as Restoration Hardware, would be logical candidates for Lincoln Square's retail space, he said.

Ian Gillespie, the Canadian developer who proposed Lincoln Square in 1997, was among those yesterday who welcomed the news of Freeman's company stepping in.

"At the end of the day, I just really, desperately, would love to see that thing built," said Gillespie, who sold his stake in Lincoln Square last year to Lend Lease Real Estate Investments. "It's an embarrassment to have it sitting there the way it is."

Kemper Development, which also owns the nearby Bellevue Place hotel and office complex, would bring its holdings in the area to more than 3 million square feet with the Lincoln Square deal. Bellevue Square, with more than 200 stores, accounts for 1.3 million square feet of that space.

Freeman said he plans to reconfigure Lincoln Square's proposed retail component to put more of its storefronts along Bellevue Way, departing from the enclosed-mall concept previously envisioned. Bellevue Square has taken a similar, street-facing approach on the opposite side of Bellevue Way, with such storefronts as Crate & Barrel, Borders Books & Music, and The Cheesecake Factory.

Kemper Development plans to market Lincoln Square, Bellevue Square and Bellevue Place as if they were one project, positioning them as a destination for shopping, dining and entertainment. The projects combined will offer more than 10,000 parking spaces. The company also is considering linking the projects via sky bridge or underground pathway.

Freeman said he is inclined to keep the Lincoln Square name, although he acknowledged that it might be wise to unify the three projects with one identity.

Lincoln Square's current developer, Lend Lease, oversees the project on behalf of an investment fund that owns the project. The company halted work on Lincoln Square in June, citing the economy and the weak office market.

Lend Lease first approached Kemper Development in July about the possibility of investing in the project, Freeman said. Under the preliminary agreement announced yesterday, Freeman will have 90 days to decide whether to complete the deal.

Kemper Development would become the project's majority owner, although the Lend Lease investment fund would retain a stake.

Freeman hopes to resume construction early next year on the project's residential, hotel and retail components. They would be scheduled for completion in fall 2005. Construction of the office tower isn't expected to resume until the office market rebounds.

Financial terms of the deal were not disclosed, but real estate sources placed Kemper Development's bid in the range of $30 million to $40 million. While the price may sound like a good deal, especially considering that $200 million has already been invested in the project, Freeman's move does not come without risk.


		Phil H. Webber / P-I
	James Melby, left, president of Kemper Development, and Bellevue developer Kemper Freeman Jr. confer before announcing the Lincoln Square deal yesterday.

"This is about as complex a project as exists anywhere in the United States," said Bob Wallace, a Bellevue developer who spoke to Freeman about his plans Tuesday.

Several companies bid on the project, said Richard Leider, the project director for Lend Lease. He called Kemper Development's market presence and the success it has had in comparable mixed-use projects "overwhelming."

Others in the real estate business said developer Opus Northwest was seriously interested. Tom Parsons, vice president of Opus Northwest, said his firm has been closely watching Lincoln Square since it was first announced. He declined to say how far his firm went in pursuing the project.

While there are inherent challenges in creating such a large development, Parsons said he thinks Freeman could make it work.

"I think it is still too early to tell how things are going to end up, but there is a lot of reason to believe that Kemper can get things done," said Parsons. "He obviously has a lot at stake in the neighborhood."

The retail portion of Lincoln Square could draw retailers that prefer to be located on the street level instead of inside a traditional mall like Bellevue Square, said Charles Staadecker, a retail real estate broker. He said interested tenants would include national and regional businesses that do not have a presence in the Seattle area.

Some of the tenants might cater specifically to the hotel guests and residents staying in the other parts of Lincoln Square, said Patrice Duker, spokeswoman for the International Council of Shopping Centers. Unlike the mall, Lincoln Square will have customers there 24 hours a day, so some businesses might have to keep longer hours.

The Lincoln Square announcement comes just days before the International Council of Shopping Centers' spring convention, which begins in Las Vegas on Sunday. Freeman said his company has meetings with about 200 prospective tenants during the event.

By offering space in both Bellevue Square and Lincoln Square, Freeman has more options to present to retailers, said real estate broker Maria Royer of Blatteis Realty Co., which handles retail leasing for Lincoln Square.

Jon Runstad, chairman of Seattle development company Wright Runstad & Co., said Kemper Freeman's involvement in Lincoln Square is an encouraging sign.

"It will take downtown Bellevue in the direction that it has been headed for a long time now, which is more of an urban environment," said Runstad, whose company has long been active in Bellevue.

But can Freeman pull it off? Runstad thinks he can. "Look what he has done with Bellevue Square."

AT A GLANCE

The Lincoln Square project will have as much as 400,000 square feet of retail space, a 27-story office tower and a 41-story residential/hotel tower with 148 condominiums above a 303-room hotel. Bellevue Square and Bellevue Place developer Kemper Freeman Jr., whose company yesterday announced a deal to become Lincoln Square's majority owner, hopes to resume construction early next year on the project's residential, hotel and retail components. Construction of the office tower isn't expected to resume until the office-leasing market rebounds.

More headlines and info from Bellevue.