Title
Development Agreement with Mortenson Development for Installation of Public Infrastructure (Ordinance S-52226) - District 2
Description
Request to authorize the City Manager, or his designee, to negotiate and enter into a development agreement and any other agreements as necessary (Agreements), with Mortenson Development, or its City-approved designee (Developer), for the installation of public infrastructure improvements. Further request to authorize the City Controller to disburse all funds related to this item and the City Treasurer to accept all funds associated with this request.
Report
Summary
On June 20, 2025, Developer was the winning bidder on approximately 217 acres of Arizona State Land Department (ASLD) land at the northwest corner of Scottsdale Road and the Loop 101 Freeway. Phase 1 of the mixed-use development will include an approximate 30-acre speculative mixed-use office campus (Project). Developer has extensive experience developing industrial, office, and hospitality projects in Phoenix. An ASLD requirement was a $30 million contribution to Maricopa County's Paradise Ridge Flood Hazard Mitigation Project. The Paradise Ridge Wash Mitigation project has significant impacts to north Phoenix and Scottsdale; it is a flood hazard mitigation project that will reduce the flood risk and potential damage to properties. The Paradise Ridge Wash Mitigation project will design and construct a levee system to contain the 100-year flood along Rawhide Wash in Scottsdale and Phoenix. This additional funding will allow the project to commence and remove over 1,000 acres of land from the floodplain and make it more developable.
The City recognizes the resulting substantial economic impacts to the City and region by the Developer through this project. This established and well-known developer will be able to bring much needed speculative mixed-use development, including Class A office, retail, restaurants, entertainment, and other compatible uses to the Phoenix side of Scottsdale Road. This will assist the City in its trend of bringing new corporate office announcements along the Loop 101 corridor, that signifies a return to normal in-office business and recovery from the COVID-19 pandemic. To support the regional flood control project and facilitate new office and retail space in Phoenix, staff recommends the following business terms:
- Developer to master plan and develop the entire 217-acre site and construct no less than 5 million square feet of mixed-use development in multiple phases.
- As part of Phase 1, Developer agrees to build a 30-acre mixed-use campus of at least 350,000 square feet.
- Within 12 months from the date of Council Authorization, Developer and City will use best efforts to enter into the Development Agreement (DA).
- Within 36 months from execution of the Agreement, Developer will satisfy all requirements for issuance of the public infrastructure permits for Phase 1, pay all applicable fees related to the initial phase of development, and obtain the first infrastructure permit for Phase 1.
- Developer will construct certain eligible Public Infrastructure Improvements, as approved by the City and defined in the Agreements, in compliance with Title 34 of the Arizona Revised Statutes.
- Public infrastructure improvements include street frontage and intersection upgrades as required by Street Transportation Department, public water and sewer main extensions as approved by the Water Services Department, and any regional floodplain improvements (excluding those made by the City/County under the Paradise Ridge Wash Mitigation Project) and other regional traffic infrastructure improvements.
- Developer will dedicate, at no cost to the City, the additional right-of-way and public easements within Developer's ownership and control that have not already been dedicated by ASLD.
- Upon completion of construction and acceptance of the Public Infrastructure Improvements by the City, City will reimburse Developer for such improvements. At no time will reimbursement exceed Developer costs for public infrastructure (Reimbursement Cap).
- City and the Flood Control District of Maricopa County will initiate the planning, engineering, and construction of the Paradise Ridge Flood Control Improvements upon the execution of the Agreements.
- Developer shall contribute $1 million into escrow for the design and construction of the Paradise Ridge Flood Control Improvements upon execution of the DA; an additional $18 million and $11 million contributions upon notice by the City and ASLD. These contributions are not subject to Transaction Privilege Taxes (TPT) reimbursement.
- City shall receive from escrow, upon certain performance benchmarks, the Developers funds and pay such amounts to the Flood Control District of Maricopa County for the design and construction of the Paradise Ridge Flood Control Improvements.
- City will make best efforts to identify and apply for federal grants which may assist in funding the regional flood control infrastructure.
- Agreements will include other terms and conditions as deemed necessary by the City.
The City's reimbursements will include the following provisions:
- Reimbursement will not exceed actual verifiable costs for the approved infrastructure improvements.
- Reimbursement payments will not begin until after the Developer completes the approved Public Infrastructure Improvement(s) and the City has accepted those improvements.
- Reimbursements will be paid on an annual basis, in arrears, and will not exceed the amount of the City's eligible General Fund portion of the TPT collected and received from the Project, which are verified by the City.
- To track TPT eligible for reimbursement, all contractors, subcontractors and vendors must secure a project specific TPT License related solely to the Project, such tracking will commence upon execution of the DA.
- Funds for the reimbursements will come from 100 percent of the City's eligible General Fund portion of the TPT taxes received from the Project.
- No other sources of funds, unless any federal grants received by the City which are applicable to this regional flood control infrastructure are received, would be used if the above resources are not adequate to meet the Reimbursement Cap.
- The Developer will be eligible for a separate Credit Agreement when they pay their Paradise Ridge Flood Control Impact Fees in advance as noted above. This agreement is administered by the Planning and Development Department to ensure that the Developer is reimbursed for the advanced impact fee payments that are greater than their proportionate share. Repayment is contingent upon other developers paying their drainage impact fee at the time of their development and can only come from monies collected within that specific impact fee category.
Contract Term
The Agreement will terminate upon the earlier of the date the Developer has received the full amount of the Reimbursement Cap or 35 years after the execution of the DA.
Financial Impact
Funding for the reimbursements will come from the eligible portion of the City's General Fund TPT taxes received from the Project. Financial terms of the Agreements will be provided to the Budget and Research and Finance Departments for review prior to finalizing and executing the Agreements.
Location
The northwest corner of Loop 101 Freeway and Scottsdale Road
District 2
Department
Responsible Department
This item is submitted by Deputy City Manager John Chan and the Community and Economic Development Department.