The biotech hub Vulcan envisioned is taking a back seat to residential projects and companies moving to the neighborhood.

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South Lake Union has a way of not turning out the way people expect it to.

When a grass-roots movement in the mid-90s tried to turn the core of this old Seattle warehouse district into a park called the Seattle Commons, neighborhood businesses said no way, and city voters agreed.

Then came the vision of a biotechnology hub employing 10,000 people, the region’s next Microsoft. But despite enthusiastic support from city officials and the South Lake Union neighborhood’s biggest landlord, Paul Allen, the minicity of scientists is materializing more slowly than expected as the biotech industry hits a lull.

Instead, the neighborhood is being transformed into a complex stew that defies easy description:

• Residential projects are taking the lead, with more than 2,500 condos and apartments in the works the next three years in South Lake Union and surrounding blocks.

• Dozens of small and medium-sized businesses, from office suppliers to artists, have been forced to move as landlords have decided to redevelop. But others have moved in. Overall, there’s been no major small-business exodus from the neighborhood.

• While South Lake Union has been touted as a future engine of the region’s economic growth, most of the jobs landing there have been big companies moving to Vulcan projects from other Seattle office buildings, such as Group Health Cooperative and architecture firm NBBJ.

Allen’s company, Vulcan, would love to build more high-rent biotech lab space, but lately it has had an easier time luring office and retail tenants to conventional buildings.

Hans Kemp, a principal with the Staubach Company who works with many of the region’s most prominent biotech and pharmaceutical companies, says the industry is in a cyclical lull. Once it starts growing again, the South Lake Union neighborhood remains a compelling destination because of the large health-sciences presence already there.

“I’m optimistic and excited about the redevelopment of the South Lake Union area,” Kemp said. “You’ll see biotech be a bigger part of it again once that sector rebounds a little bit, and if you look at history, it will.”

Following Vulcan’s lead

Early in this decade, Vulcan — the neighborhood’s biggest landowner with 60 acres — was the only one pushing forward with new buildings, projects backed by billionaire Paul Allen’s money.

Last year, Vulcan and partner Harbor Properties finished Alcyone, the first major apartment building in the neighborhood in decades. Then, with neighbor Pemco Insurance, Allen’s company’s donated $700,000 to improve the neighborhood park.

Now other developers are taking their turn in the latest wave of development, a residential boom mostly taking place in the Cascade area southeast of the lake and just west of Interstate 5.

The Cascade neighborhood has suddenly become one of the city’s fastest-growing places, sitting right off the freeway with views of the lake. With Capitol Hill to the east crammed full, the old warehouses in the Cascade neighborhood were a logical next step for developers, but the area’s gritty image had put them off.

Two years ago, Seamark Properties decided to build luxury apartments on Yale Avenue near REI’s flagship store, but principal Jeff Hanson said it was not an easy decision, and it wouldn’t have happened without Vulcan’s commitments.

“The neighborhood was difficult,” Hanson said. “It’s a rundown area and it hadn’t come into being yet.”

Seamark is about to open a 100-unit luxury apartment building in a neighborhood that until recently didn’t have luxury anything. Just down the street, two big national developers, Security Properties and Trammel Crow Residential, have begun projects that will add 600 apartments and condos.

“In two years, it’s matured so much beyond what we expected, so we don’t get any resistance to the neighborhood,” Hanson said. “We don’t get questions like, ‘Why would I want to live here?’ It’s got to be Vulcan’s marketing that has driven that.”

Not just luxury living

While the neighborhood is undoubtedly going more upscale, much of the new residential construction is aimed at middle and lower-middle income people. Denny Park Apartments, under construction on Eighth Avenue North, are supported by a $2 million city housing grant and will provide 50 studios and apartments aimed at people earning 60 percent or less of the median income.

Security Properties says it’s aiming its new condo project at moderate-income buyers, with prices well below what downtown Seattle condos have been selling for. And Vulcan’s latest condo project in South Lake Union will be compact lofts also aimed at middle-income people.

Ed Geiger, a longtime business owner who is active in the group, South Lake Union Friends and Neighborhood, said Vulcan has tried to be a gentle giant, not moving too fast and trying to respect the neighborhood’s character.

“Most developers these days buy, they build and sell, and they want a 200 percent return on their money,” Geiger said. “Vulcan is building so that in 50 years, they’re still successful. And because of the 55 acres [Vulcan owns], they have to have the whole neighborhood be successful.”

Priced out?

But Geiger says success will inevitably mean that some longtime businesses, including his own, will not be able to afford to stay.

His company, Frontier Geosciences, is an organic-chemical-research lab that employs 50 people. It’s exactly the kind of brain-power business Vulcan wants in the neighborhood.

But Geiger says it’s not the kind of business that can afford top-tier rents for office space.

“I’m a business that probably will be priced out,” Geiger said. “My stance is that when you have progress and you do the right thing, there are some businesses that will get the raw end, but you’ve got to look at the bigger picture. It’s going to be a cooler place.”

Others are less philosophical about the changes.

“This place is going to be so sterile,” said Ken Clark, a stained-glass artist who works at Seattle Building Salvage, which is moving to Everett this month. “Within the next 5 to 10 years, it’s going to be sterilized. It’s going to be a little Bellevue.”

The company, which specializes in saving and re-selling antique building fixtures, is in an old Vulcan-owned building on Westlake that will be torn down to build a new headquarters for Group Health.

Seattle Salvage is one of dozens of Vulcan tenants who have paid low rent to be in buildings scheduled to be torn down. Another is Salle Auriol, Western Washington’s biggest fencing club. The club so exemplifies the kind of neighborhood Vulcan wants to create that the developer features Salle Auriol on its Web site.

Many tenants have known for years that their buildings were candidates for redevelopment, Vulcan spokeswoman Alison Jeffries says. Vulcan tries to give them as much warning as possible and tries to help find alternative spaces.

But Vulcan can’t rent its new buildings at a loss, Jeffries says, even to tenants it wants to keep in the neighborhood.

“It’s hard, and it’s something we struggle with all the time,” she said. “We try to be a good community partner and a good neighbor.

“Sometimes if your company is owned by a wealthy individual, people have an expectation that you should give it away for free. That’s not true. We have a giving arm, which is the [Allen] foundation, and then we have our for-profit arms.

“There’s also a perception problem that we are picking and choosing who should stay, and that wouldn’t be fair. We don’t play God. We try to offer choices to people who are our tenants.”

New replacing old

Despite all the construction, there’s been no exodus of small businesses from South Lake Union. Rents in older buildings have not begun increasing and are still far cheaper than Capitol Hill or Fremont.

Several longtime business owners interviewed said they had no intention of leaving because the location near downtown is ideal.

“There’s this panic that all these businesses are moving,” said Monty Holmes, president of Athletic Awards. “Yes, there are a few, but they’re being replaced by other businesses.”

As new office and apartment buildings bring more people to the streets, retail and service businesses are appearing that haven’t been in South Lake Union for decades, such as an Irish pub, Paddy Coyne’s; a Russian-style spa, Banya5; and a new skateboard shop, Concrete.

Banya5 proprietor John Goodfellow, whose family has long owned property in the neighborhood, says Vulcan is trying to do the right thing.

“They’re well-intended people, and that can get you far,” Goodfellow said. “They’re thinking about it. It’s not just willy-nilly opportunistic kind of stuff.

“If anything, their fault is that they think too much. You need things to kind of organically evolve and not have it all thought out ahead of time.”

Tom Boyer: 206-464-2923 or tboyer@seattletimes.com