Prepare Coffee Cake:
1. In cup, combine 1/2 cup warm water (105° to 115° F) with yeast and 1 teaspoon granulated sugar; stir to dissolve. Let stand until foamy, about 5 minutes.
2. Meanwhile, in large bowl, with mixer at low speed, beat butter and remaining 1/2 cup granulated sugar until blended. Increase speed to high; beat until light and fluffy, about 2 minutes, occasionally scraping bowl with rubber spatula. Reduce speed to low; beat in egg until blended. Beat in yeast mixture, salt, and 1/2 cup flour (batter will look curdled) just until blended. With wooden spoon, stir in 2 1/2 cups flour until blended.
3. Turn dough onto lightly floured surface and knead until smooth and elastic, about 8 minutes, working in enough of remaining 1/4 cup flour just to keep dough from sticking.
4. Shape dough into ball; place in greased large bowl, turning dough over to grease top. Cover bowl with plastic wrap and let rise in warm place (80° to 85° F) until doubled in volume, about 1 hour.