The Seattle City Council unanimously approved Tuesday an agreement clearing the way for a dramatic makeover of Yesler Terrace, which opened in 1941 as the city's first public-housing project.

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The Seattle City Council unanimously approved Tuesday an agreement clearing the way for a dramatic makeover of Yesler Terrace, which opened in 1941 as the city’s first public-housing project.

The agreement allows high-rise buildings up to 300 feet at Yesler Terrace, just south of Harborview Medical Center on First Hill. The Seattle Housing Authority, which owns Yesler Terrace, plans to sell some of its 30 acres to private developers who would build office, condo and apartment towers on the property.

The housing authority hopes to use $145 million from property sales to rebuild Yesler’s 561 well-worn apartments, along with streets and water and sewer lines. Residents would be relocated during phased construction that could take up to 20 years.

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After hearing from citizens and activists who wanted to delay or scrap the plan, council members said they improved the housing authority’s proposal in several ways.

“I think it’s still risky, but we’ve got more safeguards than before,” said Nick Licata, chairman of the council’s housing committee.

Licata said he and other council members were ultimately persuaded to back the plan because they didn’t see a feasible alternative for rebuilding or rehabilitating Yesler’s 71-year-old apartments given declining federal funding for public housing.

Contrary to what some housing activists contend, Licata stressed that all of Yesler’s current 503 households have a guaranteed right to return if they want to, and the plan would replace all of Yesler’s 561 apartments within the immediate neighborhood.

The council also required the housing authority to use all proceeds from the sale of land for rebuilding Yesler Terrace.

If the authority gets more than it needs, the money will be used to pay for up to 100 additional apartments for low-income residents.

Affordable-housing activists argued the project should not tap funds from the city’s voter-approved $145 million housing levy. That money should add to the city’s low-income housing supply, not replace existing apartments, said John Fox of the Seattle Displacement Coalition.

The council reached a compromise of sorts, allotting $6.6 million of levy funds to Yesler, plus $1 million in other city funds to rebuild its apartments.

The housing authority would have to compete with other nonprofit developers for additional levy funds. The city allocated an additional $3 million to fund the project’s new central park.

Council members also took a step toward appeasing the adjacent Little Saigon neighborhood, which fears that Yesler’s redevelopment will gentrify the area and displace Vietnamese residents and merchants. “We’re afraid Yesler will be like Bellevue with posh shopping and expensive restaurants,” said Quang Nguyen, a Friends of Little Saigon board member.

The council approved a resolution saying it would explore the feasibility of a project that would include low-income housing and a Vietnamese cultural center in Little Saigon. Council President Sally Clark said advocates such as Nguyen would “make sure it’s not a broken promise waiting to happen.”

Andrew Lofton, the housing authority’s new executive director, praised his predecessor, Tom Tierney, for shepherding the Yesler Terrace plan — unprecedented in scope and size in the United States — this far. “We’re poised to create a neighborhood and community that all people will be proud of,” said Lofton.

Kristin O’Donnell, the only Yesler resident to testify at City Hall on Tuesday, isn’t so sure.

“The uncertainty of this plan is really scary,” O’Donnell said. “We should all be afraid.”

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