BELLINGHAM, Wash. — Looking out over Bellingham's Old Town neighborhood, city officials see opportunity on the horizon.

"I see the bones of a very beautiful future," says Economic Development Manager Tara Sundin.

The city wants to redevelop eight acres of Old Town into an urban village with up to 1,100 homes and 400,000 square-feet of commercial space.

"As far as an opportunity, it's pretty incredible to have this much acreage under a single ownership," says Sundin. "We don't have much of that in this town."

Six of those eight acres are owned by Northwest Recycling. The other two, by the city.

Northwest CEO Kevin Moore says the company has reached an agreement with the city to move its noisy operations to a different part of Bellingham, making room for a much more attractive addition to the neighborhood.

"We are upcycling Old Town," he says.

Old Town was once the center of Bellingham. It is prime real estate with access to parks, the waterfront and additional development like the old granary that will one day house a Pike Place-style market.

But it is inhabited mainly by light industry these days, along with the Lighthouse Mission -- a hub for homeless services.

Some 400 people per day come through the mission's four facilities every day.

Executive Director Hans Erchinger-Davis says that number is expected to grow by 10 percent every year for the foreseeable future.

He hopes the developers know what they're getting into. 

"If people don't realize that we're a homeless shelter, it can be frustrating because they claim it's our fault they can't rent out their place. The reality is, we've been here for decades."

The city says the plan is to weave the Mission and its homeless into the fabric of the new neighborhood.

"We see Lighthouse staying in Old Town," says Sundin. "But we also see the diversification of the neighborhood so we have a full range of incomes living here."

Erchinger-Davis believes two worlds can coexist, if done properly.

"What we like to do is engage the community, and get people to volunteer with us," he says. "That way, when people see homeless on the street they start to develop a sense of compassion and they see that many of our people are just trying really hard to get by."

The agreement with Northwest Recycling must first be approved by the Bellingham City Council. A public hearing on the issue is scheduled for January 28 at 7 p.m. in the council chambers.