We have here the makings of a scummy fictional bestseller of intrigue-corruption-government subterfuge. Naturally in order to sell this story to Hollywood we would also throw in steamy scenes and maybe a soupcon of spy thrilling MI-5 type action.
This particular story started back in January 2009 when a developer and owner of land on the north west corner of Tatum and Greenway applied for a rezoning from residential to commercial to build a corner mall. The rezoning application was called Z-76-08-2.
Little did the locals know that even before the whole process started the Phoenix City Council had turned a deaf ear to its citizenry.
At the time the locals were all certain that this rezoning would be declined. How could it possibly go forward? From a one block radius of Tatum and Greenway there were fourteen corner malls most of which were 50% empty. To approve yet another corner mall would undermine the local commercial real estate market and further collapse property values. In January 2009 reports of the commercial real estate collapse were beginning to bud and people assumed that the city council was bright enough to understand this.
Over six months from January to June 2009 a series of public hearings occurred. There were three or four hearings in all and three hundred to five hundred people showed up during each hearing. These people all lived in the neighborhood. They listened and it was obvious to all of that these hearings were all for show. Citizens showed up with well prepared slide shows and diagrams explaining why this should not be approved. It was so obvious this mall should not be built.
A handful of witnesses showed up for the developer some of which looked like they were disguised in Halloween makeup and wigs to testify why the mall should be built. It was suggested that the mall would look “pretty” and that when walking by the existing lot it was an “eyesore.” One young man in his late twenties who had an architectural background testified that in his entire career he had not seen such an impressive architectural edifice. Imagine that, people were told that they were getting a mall that would rival Notre Dame in France.
Economic report, after economic report was submitted that the economy would be falling apart and that undermining the local economy and real estate market by approving this project was not a good idea.
Even city engineers pointed out to the city council that the traffic conditions had a failing grade. There have been a series of horrible accidents at that intersection.
The facts were ignored and one of the attorneys for the developer implied that over a decade this project would make the community $20 million. People were told that businesses like Walgreen’s and Fresh and Easy were falling all over themselves to lease the space.
By June it was obvious that the city council’s attitude was that the Tatum-Greenway neighborhood was their property to do whatever they wished regardless of what the citizenry wanted. The developer went bankrupt and a series of mercurial Delaware corporations popped up to buy the land back allegedly at 10% of original value. Do you think the city council might have thought that they were making a mistake when the developer was having financial problems? No. The city council forged on and the project was finally approved.
Now of course all those companies lining up to lease space in the mall are competing with the “for lease” signs plastered all over the property. The other fourteen malls are losing more and more tenants. The city council could have very easily sat down with these tenants and encouraged them to lease existing space. The addition of say a Walgreen’s or Fresh and Easy at the south west corner of 40th Street and Thunderbird just a block south would have gone a tremendous way towards revitalizing that area. What a great gesture they could have made and the community would have been very grateful. The city council would have had to do a little real work of course.
One wonders what possible benefit this city council could have derived when approving this project was such a loser in this economy? How could they think they would get more tax revenue? What could it be that they are getting in return? Interestingly, one of the council members Peggy Neely had previously backed a project Citi North worth hundreds of millions that is now bankrupt. Another council member Mr. DiCiccio we were told is a developer and made the comment at one of these hearings that we would be grateful that this project was going forward.
It has come to light just recently that there was a special sweetheart deal in the stimulus legislation that developers would get special tax treatments where they could write off their expenses past the 3 year normal write-off time limit. It is reported that developers will gain hundreds of millions of dollars in tax refunds. The developers then report these refunds as profits when they have created nothing. Is that what our neighborhood boils down to? We get our neighborhood turned into a sewer for the sake a failing developer. We pay the taxes. We get our quality of life reduced and the city gets a bone in anemic fees. The city council gets its crumbs in contributions. And the developer gets millions in tax refund. For example, the land was allegedly worth $18 million and bought back for $2 million a $16 million loss. If the developer is in the 50% tax bracket he picks up a cool $8 million.
Don’t you wish you could do that with your house or portfolio? Imagine if your house was worth $500,000 and it is now worth $250,000 and your portfolio was worth a million and is now worth $250,000. Combined you are looking at a million dollar loss. Say you are in the 50% tax bracket with state and federal taxes and could write off back six or seven years you would get back a cool $500,000. How is that for a stimulus bump. We would bet that a lot of people would start spending.
Instead developers get hundreds of millions back that we pay for and they have no incentive to invest anymore for the future. The current commercial real estate market is at the beginning of a total collapse. Who is going to invest in commercial? The only way to invest in commercial is to buy liquidated banks whose assets are liquidated at less than 50%.
The following report comes from Congress and it is not pretty. If Congress is saying this, it means that it cannot be hidden. Keep in mind we knew this fourteen months ago. We knew commercial was going bust. Why did this council decide to raise this edifice to their stupidity. Why were they so reckless?
Here is how the report starts:
” Wave of Refinancing Could Overwhelm an Already Weakened Financial System Community Banks at Greatest Risk
WASHINGTON, D.C. – The Congressional Oversight Panel today released its February oversight report, “Commercial Real Estate Losses and the Risk to Financial Stability.” The Panel is deeply concerned that a wave of commercial real estate loan losses over the next four years could jeopardize the stability of many banks, particularly community banks, and prolong an already painful recession… More…”
How could these city people create such a mess when we all knew the obvious fourteen months ago?
It also makes you wonder who exactly is funding this travesty? It makes zero business sense. Where does the money trail lead?
Since the project has been approved, the Phoenix City Council has moved onto more important issues. They have voted themselves a 2% tax on food which will of course hurt the ones who need their food the most. The tax was rammed through with very little discussion.
Is there no end to their contempt for the ordinary citizen?