As Seattle’s building boom has gone bust with capital drying up, a massive three-acre hole sits dormant in the middle of one of Seattle’s most desirable neighborhoods—and it isn’t going to be filled anytime soon.

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It just sits there, taunting neighbors and passersby with all of its unrealized potential laid bare. A gigantic hole the size of two-and-a-half football fields that looks more like a swimming pool with the water drained out than the construction site it should be. Inside it there are no cranes, no workers, nothing.

The stillness of the hole is head-scratchingly curious. Most people walking around it have no idea why someone has carved this three-acre, 20-foot-deep chasm into one of Seattle’s best neighborhoods and just left it to sit. But sit it does—a casualty of a boom gone bust.

During this decade’s real estate boom, holes like the one on the east side of Green Lake dotted the city’s landscape. Back then capital flowed, credit was easy and a pit quickly became the home of a gleaming new development. However, the cavity at 71^st and Woodlawn, a stone’s throw from the lake that gives the neighborhood its name, has been sitting dormant for nearly two years with little hope of being filled anytime soon.

Before it turned into an unsightly hole in the ground, the Vitamilk Dairy occupied the block facing the Little Red Hen country western bar. But after six decades of operation, the Hen’s milk-making neighbor closed its doors in 2003. Although their business went belly-up, the family who owned the dairy retained the site and teamed with developer Lorig Associates. In 2004, they outlined plans for a new mixed-use retail and residential space that would be “a legacy for the neighborhood,” says Lorig’s Krista Blackburn, the site’s project manager.

It was a venture evocative of the age—what was old and had outlived its usefulness would be demolished and made new again. During the last 10 years, we imploded the Kingdome to build Qwest and dismantled the UNOCAL transfer station to make way for the Olympic Sculpture Park. In that vein the family would raze their abandoned dairy and replace it with a six-story building replete with 480 apartments and 120,000 square feet of retail space.

The plan was fine in theory, but the execution hit a significant snag as demolition began in 2007. In the spring of that year, Lorig announced upscale grocer Metropolitan Market would likely be the property’s all-important “anchor tenant”. Unfortunately, the store pulled out of negotiations a short time later, leaving the developer to seek another supermarket to take Metropolitan’s place. After the withdrawal, a Portland-based store showed interest, but talks with them stalled as well.

The lack of an anchor tenant paralyzed the project. Lorig removed equipment from the hole it had just dug and halted construction while it searched in vain for a grocer. Prospects of finding this elusive lessee were all but dashed last fall when the nation was hit by an economic tsunami that washed away the credit markets. In the wake of the downturn, “a ridiculous inaccessibility to finance” gripped the region and froze building, says Bob Gregg, an Edmonds-based developer, who himself has a 50-unit condo development on hold until “financing loosens up.”

As if the lack of cash flow wasn’t bad enough for developers, the fancy-free days of perpetually rising property values also ceased.  The market fell so far that the cost of developing a property actually exceeds the value of the finished product, says Levis Kochin an economics professor at the University of Washington. “Building now is a way of guaranteeing yourself a loss.”

For the owners of the giant hole, they’re in the fortunate position to weather the recession because they own the land outright. Letting such a valuable property sit idle for so long would cause “a lot of other developers to go bankrupt” says Michael Cornell, a realtor who chairs the Green Lake Community Council. With the luxury of being patient, the site will remain dormant for at least another year, according to Blackburn, who says “our best hope is that we would start construction in June 2010.” That means Green Lake will be waiting at least three years before development’s completion.

However the prospects of building are improving, as the chilly real estate market shows signs of warming nationally. Locally, Gregg sees the economy strengthening with the recent uptick in sales of his condos. These signs of a rebound give Blackburn optimism about the future, saying potential tenants are looking long term and are banking on things not being so bleak in the years after construction finally begins.

“When all is said and done, it’s going to be two to two-and-a-half years later and the world is going to be a much different place than it is today.”