Title
Acquisition of Building Located at 2526 W. Northern Ave. and Lease of Adjacent Property Located at 8114 N. Black Canyon Hwy. (Ordinances S-48504 and S-48550)
Description
Request to authorize the City Manager, or his designee, to negotiate and enter into a purchase agreement and any other agreements necessary with Saia Family LP, for the purchase of the former Kmart building located at 2526 W. Northern Ave (Site). Further request authorization for the City Controller to disburse all funds related to this item. Funding for this purchase will not exceed $12 million. There is no impact to the General Fund for the purchase of the former Kmart building. Funding is available through the City's allocation of the American Rescue Plan Act (ARPA) funding received from the federal government and is under the City's Workforce Training Facility and Training Program category.
Additional authorization is requested to enter into a lease on the adjacent property located at 8114 N. Black Canyon Hwy., for an initial term of 25-years, with multiple 10-year renewal options. The initial amount of the rent beginning January 1, 2023 shall not exceed $234,000 annually, and will increase annually in accordance with the lease terms. The annual rent payments would come from the City's General Fund.
These two items shall be approved under separate ordinances.
Report
Summary
The Site along 27th Avenue has remained vacant for over five years and is one of the last large infill sites available for redevelopment along the I-17 Freeway. The property owner has received numerous offers for this building that would convert the property into uses such as a park-and-swap, storage, heavy industrial and multi-family uses. Studies have shown that these uses are not conducive to the revitalization and crime suppression of this area. Community visioning sessions have indicated the desire to repurpose the Site into an innovation center offering education, workforce training and job opportunities for the community. The City has worked with several community partners to explore the viability for the adaptive reuse of the Site to offer the programs noted above.
In 2020, the City contracted with Gateway Community College's Center for Entrepreneurial Innovation (CEI) for the completion of a feasibility study. Some of the potential uses explored included:
- K-12 and community college education
- Business incubation
- Workforce development
- Skills/technical training center
- Culinary support services hub
In 2021, the City, in partnership with Arizona State University (ASU), Maricopa Community College District (MCCCD), and Western Maricopa Education Center (West-MEC) (collectively, Government Partners), contracted with M. Arthur Gensler Jr. & Associates, Inc. (Gensler) for the completion of a building assessment (Assessment). The Assessment addressed the structural and mechanical requirements needed to support the various uses considered for the Site. These Government Partners will continue to be partners on the redevelopment and educational uses to be provided for at the Site.
On June 8, 2021, the City Council adopted the American Rescue Plan (ARPA) Fund Strategic Plan. As part of the first tranche of funding, $15 million was allocated for the purchase and redevelopment of the Site under the Workforce Training Facility and Training Program category. As part of the second tranche of ARPA funding, an additional $3.5 million is being requested to begin the renovations on the building following the purchase of the Site. The use of the total $18.5 million allocation would include the $12 million purchase price and $6.5 million in initial improvements to the Site
Located adjacent to the former Kmart is a property that currently operates as an event venue, located at 8114 N. Black Canyon Hwy. This property would not be included in the purchase of the Kmart building but would instead be leased by the City for a term of 25-years, with up to seven to 10-year renewal options.
The results of the feasibility study and Assessment have outlined the opportunity and framework to transform the Site into an innovation center that will provide education and workforce training programs to the community. If approved, the City will move forward with the purchase of the Site utilizing ARPA funds.
Neighborhood Services, Police, Public Transit, Street Transportation, and Human Services staff have been working collaboratively to improve the safety and quality of life along the 27th Avenue Corridor, adjacent to the I-17. This Corridor is consistently a source of violent crime, prostitution, drug use, trespassing, blight and other quality of life concerns. The ease of access to this area, along with challenging hotels, motels and apartment complexes, several of which are immediately north of the Site, have created an area where crime can flourish with few impediments.
At its Feb. 16, 2022 meeting, the Phoenix City Council approved a 27th Avenue Corridor Community Safety and Crime Prevention Plan, in partnership with ASU, that will provide a direct focus on this area. The redevelopment of this project is a key part of this overall solution.
The challenges of this area have been exacerbated by the pandemic, with this segment of the community hit much harder than others due to the density of population, the distrust of government among many members of the community, and the loss of service sector jobs that are the primary source of employment in the area surrounding this property. This multitude of challenges will require both the City and the community to come together to provide a path to bring the area back to a place where the community feels safe and the residents have a local presence for continued and advancing education, retraining and upskilling into jobs that will be less likely to be challenged as service sector jobs were during the Covid-19 pandemic. Many area residents and their children face tremendous barriers to educational opportunities, with one of the most significant being that they do not have an easy means of transportation to other areas of the City for training, which was exacerbated by the reduction of ridership during the pandemic. This strategic educational partnership with the City, ASU, MCCCD and West-MEC will bring pandemic- and downturn-resistant employment training to this community.
This Site is extremely unique along multiple fronts that help to expedite our efforts along 27th Avenue. Among the items that make this Site important to our efforts include its location along 27th Avenue, the available size, the open floor plate nature of the building, which reduces costs of interior demolition prior to tenant improvements, and its visibility from the I-17. Further, the significant size of the undeveloped acreage of the property surrounding the building provides extensive opportunities for additional educational programming at the Site outside of the existing building. Of utmost importance, this property is located immediately adjacent to the Washington Elementary School District, one of the surrounding educational entities providing direct connection to students, and their families.
While the City's ARPA funds will be used to purchase the Site and start the improvements to the building, additional funds will be needed to complete the project, with the City taking the leadership role in completing the tenant improvements. The City and Government Partners will continue to research and apply for grants and other funding sources to complete the renovation and improve the Site. Further, as part of their occupancy of the building, the Government Partners will invest an estimated $4-$6 million in the building to ready the Site for operation. These improvements will become part of the building owned by the City once installed. The Government Partners will program and assume all ongoing operations and maintenance of the Site.
Financial Impact
Total funding for the purchase of the Site will not exceed $12 million. There is no impact to the General Fund. Funding is available through the City's allocation of the ARPA funds received from the federal government. The additional $6.5 of ARPA would be used to start the renovations of the building for an educational use.
Total funding for the adjacent property lease will be not greater than $234,000 annually, beginning January 1, 2023, and will increase by a rate of 2.4 percent annually, beginning January 1, 2024. Starting January 1, 2028 a semi-decade adjustment will be applied every five years to reflect the actual change in the Consumer Price Index, but in a rate of not less than one percent annually.
Concurrence/Previous Council Action
City Council approved the use of $15 million in ARPA funds for Phoenix Arts, Business and Employee Assistance at its June 8, 2021 City Council Policy meeting.
Location
2526 W. Northern Ave. and 8114 N. Black Canyon Hwy.
Council District: 5
Department
Responsible Department
This item is submitted by Deputy City Manager Ginger Spencer and the Community and Economic Development Department.