Seattle’s deputy hearing examiner called the city’s approval of construction of the building in the Pioneer Square Preservation District “arbitrary and capricious.” The developer can now appeal in King County Superior Court or submit a modified design.

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Seattle’s deputy hearing examiner on Wednesday overturned the city’s approval of a new 12-story building in the historic Pioneer Square neighborhood.

The Pioneer Square Preservation Board voted last year against giving special approval for the building to be constructed in the Pioneer Square Preservation District, saying it would be incompatible with the scale of smaller surrounding structures.

But Seattle Department of Neighborhoods Director Kathy Nyland overruled the preservation board, letting Portland-based Gerding Edlen Development move ahead with the 200-apartment building at Alaskan Way South and South Jackson Street.

Some people who live, work and own property in Pioneer Square appealed Nyland’s ruling, and Deputy Hearing Examiner Anne Watanabe sided with them Wednesday, saying the proposed building would not be compatible with surrounding facades.

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“The scale of the structure’s facade relative to these structures would appear so large as to be monumental at this location, dominating attention and drawing the focus away from surrounding and nearby historic buildings,” she wrote in her decision.

“(Nyland) chose not to apply the code’s requirement that a building facade’s scale be compatible with surrounding structures,” Watanabe said. “Under these circumstances, the decision was arbitrary and capricious, and must be reversed.”

The project, planned for 316 Alaskan Way S., is the site of a 107-year-old building used as a parking garage since 1919.

Proponents have said the new building would be good for Pioneer Square because the neighborhood needs more housing, as does Seattle overall.

Some opponents have argued the garage should be preserved, while others have said they would welcome residential development on a smaller scale at the site.

Seattle officials said the developer can either appeal within 21 days to King County Superior Court or submit a new application to the preservation board with a modified design. A lawyer for Gerding Edlen didn’t immediately comment.

In a statement, a lawyer for the project’s opponents called Wednesday’s decision “a big victory for the volunteers who serve on the Pioneer Square Preservation Board.”

Lawyer David Bricklin said, “This decision restores their role as the primary protector of the historic resources in Pioneer Square.”

Bricklin added, “Pioneer Square is priceless and protecting it requires perpetual vigilance. The city owes a big thank you to the amazing group of individuals who came to its rescue by filing and supporting this appeal. The examiner recognized that the city’s encouragement of new development has limits and even if the staff won’t acknowledge those limits, the hearing examiner will. Projects that are out of scale with Pioneer Square’s historic character are not allowed.”