Tucson continues to face multiple challenges in its efforts to redevelop its struggling downtown, including a lack of clear guidelines for developer incentives and competitive bidding processes, vague developer plans and agreements, and the uncertainty of future tax incremental funding (TIF) from the state.
(NOTE: several studies done for Phoenix indicated that most of the successful downtown redevelopments surveyed, including those in Denver and San Diego, had TIF support. For more info., see
http://www.coppersquare.com/business/)
Downtown renovation subsidies criticized
By Rob O'Dell
ARIZONA DAILY STAR
05.30.2006
You've probably heard the cry from city officials and Downtown boosters: Rio Nuevo is coming! Rio Nuevo is coming! "Downtown redevelopment is just around the corner" has been the mantra for years. So with all the talk, where is it? And why can't developers seem to build anything Downtown without healthy subsidies from city taxpayers?
Other than housing projects on the fringe of Downtown, no new structures bigger than a parking garage have gone up in the city's core in decades. And even the parking garage was a public-private partnership. Builders say city deal sweeteners are needed because of Downtown's lack of appeal. But critics say the city's approach to Downtown revitalization — giving sweetheart, often no-bid, deals to developers with little or no competition — is a major reason for lack of progress.
"Don't want to take the risks"
Developers cite market forces as the reason for the lack of Downtown redevelopment, and the fact that they can make more money with less risk by building in parts of town that are more convenient to their customers. "Downtown has never been financially lucrative. The private sector has not gotten in because they don't want to take the risks," said Humberto S. Lopez, president of HSL Properties Inc., who is proposing a $185 million redevelopment of the Hotel Arizona, which will include a request for Rio Nuevo funding.
They also heap most of the blame on the city, with its layers of bureaucracy, wanting to micromanage properties. Many also point the finger at the city's Rio Nuevo office for slowing things down before it was restructured and stripped of some duties by City Manager Mike Hein. In turn, some Tucsonans blame the developers, who "all seem to have their hands out," in the words of Roy Martin, a Downtown lawyer and advocate of preserving historic buildings in the Downtown area.
No defined process
One thing most seem to agree on is that the lack of a set process for bidding on and buying city land Downtown hurts all the parties involved. Land, in short supply and expensive, is a key piece of the city's plan to lure builders Downtown. "There is not a publicized process for buying real estate from the city," said commercial broker Mike Ebert, noting that there isn't even a public list of city-owned properties on the market.
Donovan Durband, executive director of the Tucson Downtown Alliance, said there needs to be a fair, open and consistent process used to sell city land Downtown. He said taxpayers deserve an open process; the developers want to feel they are being treated fairly and have confidence in a predictable process; and the city wants to avoid being put into awkward positions when someone approaches it about buying or being given property. Durband said that in the past, all three sides have been dissatisfied with the process.
"Tremendous loss of money"
Louis Barassi, a lawyer with an interest in Downtown development, said the problem with the city selling or giving land for a project is too often the city fails to get specifics about what the developer will do, and when. Then, locked into the agreement, it leaves the developer free to ignore city expectations later. That results in a "tremendous loss of money and property by the city," he said. And not having a competitive process, Barassi said, "really is detrimental to the private sector, in my view."
Several proposed large Downtown projects have been launched when a single developer approached the city about a piece of property and was accepted as the only one with whom the city would negotiate. Barassi said that identifying developers and giving them the land, instead of using a competitive structure based on the best project, means the city is dealing with fewer developers with fewer financial qualifications, less ability and less clout.
He said that giving one developer a sweetheart deal leads to a vicious circle in which the next developer wants a sweet deal because the last developer got one. "It's just one loss after another," he said. "A lot of just bad deals are being put through."
City manager cites problems
Hein agreed, adding that the process of awarding a project to a developer without a competitive process, and without all the financial aspects of the deal being fleshed out, has put the city at a disadvantage. He also acknowledged that subsidizing one developer can lead to a snowball effect, with others asking for taxpayer money. Some of the projects that have been awarded or considered without having the details fleshed out include: revamping the Rialto Theatre block; a public-private partnership called the Depot Plaza to redevelop the Martin Luther King apartments; the Thrifty block, being developed by Don Bourn; a now-dead high-rise proposed by Bob McMahon and Don Martin; a planned condominium tower proposed by Jim Campbell on the former Greyhound bus station site; and 2.8 acres where the Nimbus Brewery and Town West Design Development are proposing a high-rise and brewery complex. "It has encouraged other people to come in and ask for exclusive rights," Hein said. "Nimbus is probably the last occasion where I would expect something like that to happen."
"Gambling" Downtown
There are a variety of reasons why
building Downtown is more expensive, including the need for underground parking, vertical construction and site constraints, Lopez said. The increased cost, coupled with the fact that Downtown has been near-dead for decades, makes developing there equivalent to "gambling," he added.
Doug Biggers, who is working on developing the Rialto block and the Depot Plaza, said it's tough to build Downtown with skyrocketing construction prices, a slowing housing market and skepticism that Tucson can revitalize it urban core the way other cities have done. He said there is also the question of which developer is going to take the risk and stick his neck out first.
Hein said he realizes
the margins for projects are thinner Downtown, which is a driving force behind the city asking the Legislature to extend the Rio Nuevo special taxing district from 10 to 40 years. A final Senate vote on the request is expected this week. Rio Nuevo Director Greg Shelko said the extension would give the city extra money for projects such as a new arena, and it also "shows that the city is not just begging for projects Downtown but is making investments and taking risks, too."