About $50 million for vacant land, which Scottsdale has no plans to use.
GRAPHIC: Area map of Scottsdale land deals
Scottsdale forgoes appeal in eminent domain case
Scottsdale loses in Sonoran Preserve land seizure appeal
Up to $55 million into the pockets of developers, due to McDowell Sonoran Preserve eminent domain actions gone wrong.
Another possible $8 million to an investment group, related to a disputed lease involving a water treatment plant expansion.
Nearly $5 million spent on a downtown arts district development that fell through last week.
Scottsdale is finding that buying, leasing and selling land does not always go smoothly.
On Tuesday, the City Council is to consider having the City Auditor's Office initiate a fact-finding review into one of one those eminent domain actions, the $82 million Toll Bros. condemnation, in hope of avoiding future real estate pitfalls.
The discussion comes at the request of Councilman Jim Lane, who said it's time to fix the problems highlighted by several recent land transactions.
"Some of the larger ones, we seem to have run up against some real problems," said Lane, who is challenging Mayor Mary Manross' re-election bid.
"I'd like to see a historical review of the steps that have been taken and how we're handling these kind of things. If there's any element in it that would lend itself to our not repeating this result ... then we have at least a responsibility to look at it."
Manross, however, defended the city's land acquisition practices. Condemnation cases like the Toll Bros. illustrate how difficult and challenging it is to create a nature preserve and why most cities never attempt it, she said.
"We do well and have done well over many years and the vast majority have gone well," Manross said.
Ruthie Carll, executive director of the McDowell Sonoran Conservancy, a nonprofit aimed at completing the preserve, said some bumps along the road are to be expected, and condemnations for the preserve that have gone smoothly outweigh those that have not.
"It's kind of something you have to take step by step. It's a long process, building the largest urban preserve in the country. Missteps can happen in a long process," she said. "The ratio is much more representative of a good experience."
Lawyer Dale Zeitlin represents three companies involved in disputes with the city - Toll Bros., Hualapai LLC and CGP-Aberdeen. Zeitlin said in its efforts to broker these land deals the city often winds up treating people unfairly.
TOLL BROS.
With the council's decision this month not to appeal the Toll Bros. verdict, developers stand to collect a net gain of about $49 million from the city.
Toll Bros. bought an 800-acre property at a State Land Department auction in 2002 for about $68 million, or about $85,000 an acre.
At the time, Scottsdale declined to participate, but let it be known the city intended to condemn the eastern 393 acres, situated east of Thompson Peak Parkway between Bell Road and Union Hills Drive, for the Gateway access area to the McDowell Sonoran Preserve. It is also the planned site of a multimillion dollar Desert Discovery Center, an interpretative nature center.
Thus, Toll Bros. paid about $33.4 million at auction for the easterly acres, which the city condemned in 2004.
When the eminent domain action went to trial, however, the jury set the condemned land's value at $82 million, meaning a substantial profit for the developers. The jury verdict also was millions more than Scottsdale expected.
The city's lawyers argued the price should be closer to the $33 million the developers paid at auction. Toll Bros.' lawyers pegged the land's value at the time of condemnation much higher, at about $107 million.
It was the $82 million Toll Bros. verdict that prompted Lane to request an examination of the city's land acquisition procedures. He said the verdict means that 23 percent of city tax dollars spent to date on preserve acquisitions have gone toward getting the one property.
Conservancy director Carll said the city's intention to condemn the land had been transparent.
"In the Toll Bros. case, I know the city was open about the fact that the land was going to be condemned before Toll purchased the land," she said.
She said the city continues to collect a voter-approved special tax for the preserve, which will replenish the city's funds over time. The Toll Bros. verdict shouldn't have a significant impact on the city's efforts, she said.
Scottsdale spent nearly $2.5 million on legal fees in hiring the law firm Ayers & Brown and on expert witnesses. The city must now float a $20 million bond issue to help cover the verdict.
WESTWORLD
In the Toll Bros. case, Zeitlin partially based his argument that the city undervalued the land on the fact the city paid a much higher price for another 80-acre property just a stone's throw away, at WestWorld of Scottsdale.
Zeitlin argued fair market value of the Toll Bros. parcel should be determined by looking at the sale of other nearby properties around the same time.
The roughly 80-acre WestWorld parcel straddles 94th Street on the north side of Bell Road. The city bought the property at auction from the state Land Department in 2005 for $47.5 million - more than $600,000 an acre - and financed it through a bond issue. At the time, officials said they were buying the land for WestWorld parking.
The purchase was a contingency plan, just in case the city was outbid in a subsequent land auction for two contiguous parcels closer to WestWorld. The city eventually bought those parcels as well, a total of about 70 acres abutting WestWorld's northern edge, for more than $32 million.
Nearly three years later, the land remains vacant, and city officials have no idea what to do with it. Annual financing on the northerly 80 acres ranges from about $2.4 million in 2007 to a forecast $3.8 million in 2035, while payments on the 70-acre parcel range from $1.4 million this year to about $2.5 million in 2031, city officials have said.
Some, like Councilman Bob Littlefield, have said it's surplus land that should be sold. Others, like Barrett-Jackson Collector Car Auction CEO Craig Jackson, say the land was bought for WestWorld events parking, so the city should let the auction and other events, like the Scottsdale Arabian Horse Show and the nearby FBR Open, use it.
Kroy Ekblaw, the city's planning systems general manager, said discussion on what to do with the 80-acre parcel could come during council's budget discussion in the next few months.
"We do expect there would be some dialogue coming up during the council budget process, and options looking at the future of that property," Ekblaw said.
Manross said, "It's a good investment, as you know, to own land in Scottsdale, and the important thing for the council and the community is to come together to decide what is the best use for that land."
HUALAPAI LLC
The city also has run into trouble in its bid to expand the Scottsdale Water Campus, north of Loop 101 between Hayden and Pima roads.
Scottsdale decided it needed to have access to the land to expand the water treatment plant before the state-owned property went up for auction. So in 2005, the city entered into a 10-year lease with the state.
The lease was structured so Scottsdale would pay $2,400 rent for the first year, but be on the hook for nearly $1 million a year in years two through 10. It was signed by Manross but not taken to the council per city policy. The city assumed it would win the auction and not have to pay years two through 10.
But Scottsdale was outbid by the Hualapai investment group. Scottsdale condemned the land and paid $5.2 million, but now could be on the hook for up to $8 million in legal damages because of the signed lease.
A trial had been set for June, but that has been postponed as the two sides agreed to have a hearing to determine if the signed lease is valid. That date has not been set.
CGP-ABERDEEN
The Toll Bros. case is not the only McDowell Sonoran Preserve eminent domain action to face problems.
Scottsdale also suffered a setback in its condemnation of 50 acres formerly owned by developers CGP-Aberdeen. The land sits on Rio Verde Drive just south of The Golf Club Scottsdale, 29001 N. 122nd St.
The Arizona Court of Appeals recently threw out a Maricopa County Superior Court ruling that set the date on which the land was to be appraised.
In the trial, the city argued that state law pegs the value of condemned land on the day of the initiation of condemnation proceedings. The land's value on that date, Jan. 13, 2003, was $4.88 million.
CGP-Aberdeen, on the other hand, argued that the land should be priced on the date the city actually took possession.
That didn't happen until 18 months later, on July 15, 2004. Zeitlin, representing CGP-Aberdeen, has said the real estate market was booming at the time, and the land's value increased significantly in the interim.
City officials this month decided to petition the Arizona Supreme Court to review the case.
MAIN STREET PLAZA
The city on Tuesday canceled the 2002 Main Street Plaza redevelopment agreement because the developer did not meet its timelines.
The agreement was promoted as a revitalization tool for downtown Scottsdale and one that through the sale of city-owned land would create a new arts-centered development with more than 250 urban condos and lofts, galleries, shops, and a museum east of Goldwater Boulevard and south of Main Street.
But only the first 33 condos and lofts were completed before the city pulled the plug due to delays. The city has spent $4.7 million on the deal for a public parking garage, a public plaza, alley improvements and infrastructure work for the planned Museum of the West. The city still has $7.5 million budgeted for the museum.
Developer Alan Ferris had asked for extensions to purchase city land for Phase Two, south of Second Street that would include 62 new condos and two town homes.
But on April 3, acting City Manager John Little said a new extension would only be granted if the developer gave up rights to the museum land, if for some reason the facility was not built. Ferris had five days to respond but never did and the city's position is that the contract is canceled. Ferris, however, said the agreement is still in place and he plans to finish the project.
The vacant land for the planned future residential phases is still owned by the city, which does not know at this stage how it may pursue future development.
