Title
Development Agreement with Phoenix IG, LLC for Redevelopment of the Former Metrocenter Mall (Ordinance S-49180)
Description
Authorize the City Manager, or his designee, to enter into a development agreement, lease agreement, easements and other agreements as necessary (Agreements), with Phoenix IG, LLC, or its City-approved designee (Developer), for the development of an 80-acre mixed-use project located at the site of the former Metrocenter Mall located at 9617 N Metro Parkway West. Further request authorization for the City Treasurer to accept funds from the Developer. There is no impact to the General Fund.
Report
Summary
Developer is under contract to acquire five different properties constituting the former Metrocenter Mall. The proposed multi-phase project will contain nearly 5 million square feet of space, 3,191 multi-family rental residential units, 100,000 SF of retail, two hotels, 6,300 parking spaces as well as a public plaza and park. On May 25, 2022, Council authorized a development agreement with Developer (the “TPT DA”) to acquire public assets constructed at the Site to be paid for with future Transaction Privilege Tax (TPT) revenue generated at the Project Site and the incremental increase generated in the surrounding Benefited Area. The revenues generated under the TPT DA only apply to the general fund share of the City’s TPT.
On Aug. 3, 2022, the Developer submitted a proposal for development assistance requesting the City's consideration of a Government Property Lease Excise Tax (GPLET) transaction for the development of the 3,191 multi-family rental residential units located at the Site. Other retail, hotel and commercial space built as part of the redevelopment Project at the Site is not being considered for GPLET treatment. The Site is located within the North Mountain Redevelopment Area (NM RDA), approved by Council in 2014. The Plan calls for City support of revitalizing the mall area. Since the NM RDA is not located in a Central Business District, Developer is ineligible for abatement under GPLET and will be responsible for excise tax payments, as prescribed by State Statute, immediately upon executing a lease.
If approved, the Project will bring a capital investment of approximately $1.14 Billion to the Metro District Area at full build out. The Project will be delivered in multiple phases. Upon issuance of a Certificate of Occupancy (C of O) for a completed phase of the Project, and other terms and conditions specified in the Agreements, the Developer will convey title of the property to the City, and the City will lease the property back to the Developer for a term not to exceed twenty-five (25) years. The Developer has also agreed that the Project will generate to the City and other taxing jurisdictions new revenue in the form of certain minimum tax payments (in the construction and leasing of the Project and excise tax revenue generation). These minimum tax payments would be estimated by a third party economic impact study and will only consist of the non-general fund share of applicable TPT revenues. Details regarding those minimum tax payments will be specified in the Agreements, as well as other terms and conditions deemed necessary by City staff.
The Developer also recognizes the issues relating to affordable housing not only within the Metro District, but citywide. To help solve this critical issue, the Developer would contribute $1,500,000 to the City's Affordable Housing Trust Fund, or other Council approved purpose or fund, which will be used in the future by the City to address affordable housing or other approved policy directives. The Developer will make proportional Trust Fund payments commensurate with the size of each completed phase of the Project and the payment will be due upon execution of each lease.
In addition to the Trust Payment, Developer will pay a lease rent of $2,500/annual per phase completed with annual rent increases.
Additional Business Terms Include:
- The parties will enter into a Development Agreement for the application of GPLET treatment within 6 months of Council authorization.
- Subject to state law, the Developer must enter into any lease within ten (10) years of Council authorization.
- Developer may purchase the property prior to the twenty-five (25) year maximum term, but must pay the City 50 percent of any remaining rent. In addition, Developer must also satisfy any pro-rated minimum tax payments if exercising its purchase option.
Contract Term
The lease terms for each phase will be for a maximum of twenty-five (25) years upon issuance of the C of O for a particular phase completed. There are no extensions to the proposed lease, and upon conclusion of the term, ownership of the property will be transferred back to the Developer. The Developer will have the ability to terminate the lease at any time subject to the terms of the Agreements only if in compliance with satisfying minimum tax payments due.
Financial Impact
The project site currently generates $91,000 per year in property taxes to the City of Phoenix which will end upon the lease term beginning; however, the project is estimated to generate approximately $391,000 per year of excise taxes to the city. The estimated one-time non-general fund construction sales tax revenue to the City is $8,960,000, plus an estimated annual commercial rental tax revenue generation of approximately $33,160,000 over the life of all leases. The Developer will pay a rental payment of $2,500/annually for each phase completed, subject to an annual rent increases. The rent payments over the life of all leases shall be deposited into the Downtown Community Reinvestment Fund or an alternative fund to be created in the future. Further, the Developer will provide up to $1,500,000, which will be deposited to the City's Affordable Housing Trust Fund unless otherwise directed by Council.
Concurrence / Previous Council Action
Council adopted the terms of the TPT DA at the May 25, 2022 Formal Council Meeting.
Public Outreach
Staff has met with the Metro District Community Collaboration group as well as the Washington Elementary School District and the Glendale Union High School District to discuss this Project. Additional public outreach concerning this Project was conducted in April 2022. Pursuant to state law, GPLET notice letters to the impacted taxing jurisdictions were sent on Sept. 9, 2022.
Location
9617 N Metro Parkway West.
Council District: 1
Department
Responsible Department
This item is submitted by Deputy City Manager Ginger Spencer and the Community and Economic Development Department.