File #: 16-1277   
Type: Ordinance-S Status: Passed
Meeting Body: City Council Formal Meeting
On agenda: 1/11/2017 Final action: 1/11/2017
Title: Request to Amend City Contract 117186-UDL-002 with Central Park East Associates II, LLC (Ordinance S-43137)
District: District 7

Title

Request to Amend City Contract 117186-UDL-002 with Central Park East Associates II, LLC (Ordinance S-43137)

 

Description

Request to authorize the City Manager, or his designee, to amend the Unsubordinated Development Lease ("UDL") for Lot 2 of the Central Park East Subdivision, located at the southeast corner of Central Avenue and Polk Street and between Central Avenue and First Street, and execute any other agreements necessary to (1) modify the development rights for the removal of the east half of the lot from the UDL; (2) modify the development terms of the UDL to allow for the development of a residential tower on the west half of the lot; and (3) to assign the UDL to MA Mortenson Company or its City-approved designee ("Developer").

 

Report

Summary

The City entered into an Amended and Restated Development Agreement with Central Park East Associates ("CPEA"), who is also known as National Real Estate Advisors, for the Central Park East project in 2006.  While the project was originally conceived to be a joint development between the developer, Arizona State University ("ASU") and the City, due to changes by both the developer and ASU, the project was developed as a single high-rise office tower on the south half of the block ("Lot 1") and parking lot/future development pad on the north half ("Lot 2"). The first phase on Lot 1 was completed in January of 2008 and entered into its approved lease term.

 

In 2010, due to changing market conditions and leasing challenges, the Agreement was amended to allow for Lot 2 to be placed into a lease with the City for a future office tower project. In April of 2010, the Lot 2 lease was executed.

 

CPEA has been working to select a development partner for Lot 2 and has reached agreement on terms with Mortenson. The proposed terms include:

 

A. Terminate the lease with the City for the east half of Lot 2. This new parcel will be fully subject to property tax.

B. Modify the lease to allow the construction of rental residential units.

C. Reduce the annual payment to the City, from $72,620 to $36,310, for the half of the lot remaining under lease with the City.

 

If approved by Council, CPEA will sell the east parcel to Mortenson for development of the 11-story hotel, with approximately 210 guest rooms. CPEA would then assign the rights for the lease for the west half of Lot 2 to Mortenson who would develop the high-rise rental residential building 17 stories tall with 168 units.

 

Contract Term

The contract has a lease term of 55 years and is currently in the seventh year of the lease. The proposed amendment will not change the term.

 

Financial Impact

There is no cost to the General Fund from this action. As authorized by Ordinances S-34405 and S-36760, all proceeds from the lease, repurchase and sale of the leasehold will continue to be deposited into the Downtown Community Reinvestment Fund. Furthermore, as a result of the eastern half of Lot 2 being removed from the lease, that parcel will begin paying full ad valorem property taxes that result from the development of the hotel in addition to the higher than typical Privilege License Tax revenues generated by a hotel use.

 

Concurrence/Previous Council Action

The City Council approved the Amended and Restated Development Agreement on Oct. 18, 2006, Ordinance S-33440, as further amended by Ordinances S-34405 on Sept. 19, 2007, and S-36760 on Dec. 16, 2009.  This request was recommended for approval by the Downtown, Aviation, Economy and Innovation Subcommittee on Jan. 4, 2017, by a vote of 4-0.

 

Public Outreach 

Mortenson Development has notified the downtown Community of their intentions for the requested amendment through community presentations and communication with neighborhood leaders. Throughout the outreach process, Mortenson has gained support of the amendment and project from the following downtown neighborhood associations:  Phoenix Community Alliance, Downtown Voices Coalition, Phoenix Downtown Neighborhood Alliance, Downtown Phoenix Inc. and The Urban Phoenix Project (formally known as the Thunderdome Neighborhood Association for Non-Auto Mobility). Additionally, the amendment and project are supported by the Phoenix Elementary School District.

 

Location

The project site is located at the southeast corner of Central Avenue and Polk Street in downtown Phoenix, also known as Central Park East Lot 2.

 

Department

Responsible Department

This item is submitted by Deputy City Manager Paul Blue and the Community and Economic Development Department.