Title
Development Agreement with Aardex LLC for the Adaptive Reuse and Redevelopment of the Southwest Corner of Central Avenue and Madison Street (Ordinance S-51813) - District 7
Description
Request to authorize the City Manager, or his designee, to enter into a development agreement, lease agreement, easements and other agreements as necessary (Agreements), with Aardex LLC or its City-approved designee (Developer), for the development of a two-phase, multi-family rental residential and adaptive reuse commercial project located at the southwest corner of Central Avenue and Madison Street in downtown Phoenix. Further request to authorize the City Treasurer to accept funds related to this item.
Report
Summary
On March 20, 2024, the Developer submitted an application for the City's consideration of a Government Property Lease Excise Tax (GPLET) transaction for a two-phase, mixed-use development at the southwest corner of Central Avenue and Madison Street in downtown Phoenix. The project includes the adaptive reuse and historic preservation of a 13,500 square foot, historic building located at 1 West Madison Street (Madison Phase) and the development of a 14-story, 262-unit multi-family residential building, with 6,800 square feet of ground floor retail and 202 structured parking spaces (Jackson Phase). The overall project includes 244,322 square feet of new construction along with the adaptive reuse of 13,500 square feet or ground floor commercial space and a 13,500 square foot basement on the 1.05-acre site.
If approved, the project will bring a capital investment of approximately $117 million to downtown and create approximately 1,166 construction jobs. Upon issuance of a certificate of occupancy (C of O) for 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 25 years. The project will not be eligible for abatement of the GPLET. 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 (during construction and leasing of the project, and in ad valorem property taxes after the lease term). These minimum tax payments would be estimated by a third-party economic impact study. 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 in this and other markets across the country. To help address this critical issue, the Developer has agreed to a contribution of 100 percent of the City’s share of property taxes otherwise due during each of the two lease terms to the City's Affordable Housing Trust Fund, which will be used in the future by the City towards affordable housing in Phoenix.
Application Review
A review panel, consisting of representatives from the Warehouse District Council, the Downtown Voices Coalition, staff from the Community and Economic Development, Office of Historic Preservation and Planning and Development departments, was convened in May 2024 to review the application. The panel recommended the City begin negotiations with the Developer.
Contract Term
The lease term for each phase will be for a maximum of 25 years upon issuance of the C of O for each phase. 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.
Financial Impact
The project will have no expense impact to the General Fund. The estimated one-time construction sales tax revenue to the City is approximately $1.1 million, plus an estimated commercial rental and transaction privilege tax revenue generation of approximately $957,500 at stabilization. The Developer will pay an annual rental payment for each phase. The Madison Phase annual rent will start at $2,500 in year one and escalate to $10,000 in year 25 for a total of $143,750 over the lease term. The Jackson Phase annual rent will start at $2,500 and escalate to $40,000 in year 25 for a total of $500,000 over the lease term. The rent payments will be deposited into the Downtown Community Reinvestment Fund.
Previous Council Action
This item was recommended for approval by the Economic Development and Housing Subcommittee at the March 26, 2025 meeting by a vote of 4-0.
Public Outreach
Staff has provided information to the Warehouse District Council, Downtown Core Community and the Downtown Voices Coalition. The Developer also met with the Phoenix Elementary School District No. 1. In compliance with Arizona Revised Statutes 42-6206(B)(1)(a) and 42-6209(C), the impacted jurisdictions were notified via US Mail on February 6, 2025, of the proposed GPLET transaction.
Location
1 West Madison Street and 10 to 20 West Jackson Street
Council District: 7
Department
Responsible Department
This item is submitted by Deputy City Manager John Chan and the Community and Economic Development Department.