Aug. 14 (Bloomberg) -- When Seattle's Four Seasons hotel opens, its $400-a-night visitors can swim in a courtyard pool with sweeping views over Elliott Bay and unwind at an outdoor fireplace. Or, they can pop over to the peep show next door.

That last amenity isn't in the official brochure for Seattle's ``most sought-after address,'' a $120 million project whose developers include billionaire Bruce McCaw and a former Seattle mayor. They sought to buy and demolish the neighboring Lusty Lady, the only tenant in a squat, 1900-era building owned by a local family. The family rejected a sale -- and still got $850,000 for air rights to the views over their property.

Now, the strip club is being hailed as a hero in a backlash against the gentrification that has swept Seattle and many other big U.S. cities. And the club has gained unlikely supporters, from Bill Gates's stepmother, Mimi, to the luxury hotel itself, which says it's delighted with its new neighbor.

``A local cultural icon,'' said Peter Hodgson, vice president of corporate planning at Four Seasons Hotels Inc. ``We cater to people who can afford to pay the most. It doesn't mean we're too good for people. We're in the service industry.''

The Toronto-based hotel company's collision with the Lusty Lady began in 2004, when cellular-telephone entrepreneur McCaw, former Mayor Paul Schell and other investors formed closely held Seattle Hotel Group LLC.

The group bought a parking garage, intending to replace it with a 21-story hotel-condominium complex for the Four Seasons. A 4,000-square-foot (400-square-meter) unit in the building, about a block from Pike Place Market, will cost $8 million.

Cheap Peeps

The Lusty Lady is a few steps south. The club, an old- fashioned peep show where a quarter buys a brief look at a glass-enclosed stage, is something of a city institution because of the bawdy puns on its pink marquee. One week, the sign read, ``Our Business is Taking Off!''

The bawdiness wasn't out of place during much of Seattle's history. Sailors and shipyard workers from the waterfront crammed First Avenue when the Lusty Lady opened there in the 1970s.

``They used to call it Flesh Avenue,'' said Walt Crowley, a Seattle historian who wrote a city timeline published by King County. Earlier, the building housed a seamen's bar and hotel called the Seven Seas and a theater called the Sultan that showed porn films.

The Seattle Art Museum moved in across the street in 1991. A condominium development called Harbor Steps opened to the south in 1994. By the time the Seattle hotel group announced its plans, it appeared that the Lusty Lady would be priced out by its new neighbor, said Matthew Gardner, a Seattle real estate consultant.

``They're two fairly conflicting uses,'' Gardner said. Units in the Four Seasons are fetching $2,100 per square foot, four times the $500 average for new downtown condos, he said. Work on the new hotel began in December; completion of the exterior is scheduled for next year.

Offer Rejected

The building's reclusive owners saved the Lusty Lady. Last year, the Seattle hotel group discussed buying it, managing partner John Oppenheimer said. He declined to say how much the group offered. The owners, a family partnership headed by Christto and Dorothy Tolias, turned them down, according to their lawyer, John Sinsheimer.

``The Toliases are very private people,'' he said. ``The tenant pays a very decent rent, and they enjoy the income.''

Oppenheimer said he and the Four Seasons never counted on buying out the Lusty Lady. After his group was rebuffed, it joined Harbor Properties, owner of the condos to the south, to buy the air rights in a purchase recorded in December. That allows more natural light on the south side of the new hotel and protects views for Harbor Steps.

``Part of urban living is you have all kinds of neighbors,'' Oppenheimer said.

Community Backing

Some locals haven't hidden their glee at the strip club's survival.

``The Ex-Mayor's Booby Prize,'' gloated a Seattle Weekly headline in March, referring to Schell, who pushed for new downtown skyscrapers as director of community development from 1974 to 1977 and as mayor from 1998 to 2001.

Another Lusty Lady supporter is Mimi Gates, 64, director of the art museum. She married Microsoft Corp. Chairman Bill Gates's father, William H. Gates II, in 1996. The museum has embraced its neighbor, which often uses the marquee to promote new art shows. One, for artist Chuck Close, read, ``Chuck Clothes.''

``The Lusty Lady's marquee is a Seattle landmark,'' Mimi Gates said.

The dust-up hasn't changed the club much. On a recent day, lone men wandered in and out of booths. The marquees are changed once a week, often using suggestions from the public, said the peep show's manager, who gave her name only as Debra.

``It's all about fun; this is a very clean business,'' she said.

Next door, workers are digging the foundation for the new hotel. Crowley, 59, the historian, sees some irony in the conjunction.

``I'm sure no one who goes to a Four Seasons hotel knows anything about sin,'' he said.

To contact the reporters on this story: Peter Robison in Seattle at robison@bloomberg.net

Last Updated: August 14, 2006 03:04 EDT