East Side Story

Rocked by complaints about its handling of Rio Nuevo, the City
Council is now looking to come up with a winning plan supporting new
development on the east end of downtown.

The city has already invested large sums of money to encourage
development there, including buying and renovating the train station,
purchasing the Rialto Theatre and awarding two façade-
improvement grants for the same block. The city is also finishing up a
new Fourth Avenue underpass, building a parking garage in the area and
considering the construction of another nearby.

In addition, the city is contemplating a large financial incentive,
worth millions of dollars, to spur a privately funded east-end project.
In a December City Council communication about a predevelopment
agreement regarding this proposal, City Manager Mike Hein wrote that it
could “create the critical mass from which a downtown neighborhood can
grow over time.”

However, many people are now criticizing the proposal.

“I can’t prove it was a bait-and-switch deal,” says former city
employee John Laswick, a longtime Warehouse District supporter (see
“Funky Places,” Sept. 4, 2008), about what’s happened with the
predevelopment agreement since December. “But it sure feels like
it.”

The predevelopment agreement (PDA) was with the Downtown Tucson
Development Company (DTDC). In December, this group included
subdivision developer Scott Stiteler, commercial builder Jim Campbell,
and the Portland, Ore., planning-and-development firm of Williams and
Dame.

Stiteler, along with his business partner, local manufacturer Don
Martin, owns the block which adjoins the historic Rialto Theatre.
Stiteler has also been involved with the conversion of the former
Martin Luther King public-housing project into rental complex One North
Fifth, and owns retail space in the 200 block of East Congress
Street.

The city’s agreement with the DTDC called for the group to do
extensive—and expensive—planning work in a large area along
the north and east ends of downtown. They were also slated to provide
funding for a building-conditions survey and establish a $2 million
revolving-loan fund for structural renovations in Tucson’s historic
Warehouse District.

“The concept is the city has no money,” explains Jaret Barr, of the
city manager’s office. “What if the DTDC could do the work, and our
compensation (to the DTDC) would be properties?”

Under the terms of the predevelopment agreement, the developers
would be given options to acquire numerous parcels of valuable property
for $1 each. This land was to be transferred when the DTDC finished
specific tasks.

Within weeks of the City Council’s approval of the agreement,
Williams and Dame dropped out, and Stiteler and Martin split off from
Campbell. At the same time, the Arizona Department of Transportation
(ADOT) ended negotiations with the city over transferring ownership of
approximately 15 warehouses to local control, despite months of
assurances from both sides that things were going smoothly.

Despite the setbacks, the momentum toward a final development
agreement doesn’t seem to have slowed.

“The PDA had (us paying) $5 million around the Rialto, $2.5 million
for planning, and $2.5 million for the warehouses, or a total of $10
million,” Stiteler explains, “… The focus has shifted to $10 million
on building things. We were concerned that we’d end up with a
pie-in-the-sky plan which would make us feel good for three or six
months, but wouldn’t get built.”

While Rialto-block plans are still included in the ongoing
negotiations with the city, Stiteler and Martin are now proposing to
also invest $5 million on a multifaceted project along Toole Avenue
just west of Sixth Avenue.

Stiteler can’t supply an estimated cost for this entire concept, but
does say: “There are lots of pots (of money) out there.” One of these
is a federal tax-credit program for which the city recently
applied.

The uncertainty over the financial viability of the proposal,
however, isn’t the only hurdle the project will have to overcome. The
Toole Avenue property is presently owned by ADOT. Despite the state
agency’s earlier rejection of a land swap, city officials insist
they’re now interested in swapping other land to acquire the
parcel.

Barr thinks this land exchange should occur before the final
development agreement can be submitted to the City Council.

“It absolutely has to happen before May, with a comfortable time
period before then,” Barr explains. As of the deadline for this story,
though, the sides were still haggling.

If that land swap doesn’t take place, Martin is philosophical. “If
those (Toole Avenue properties) don’t transfer,” he says, “we’ll
reorganize.”

Stiteler and Martin say they’d implement several improvements to the
property, presuming the city can acquire it. In addition to renovating
two existing warehouses—one of which now houses the youth-club
Skrappy’s—and installing a small park, the developers would
construct a new building.

“It will be a three-story building with the first floor serving as
artist space to tell their story,” Stiteler explains. “The second and
third floors would be 40 new affordable-housing units priced at under
$100,000.” While he hopes these units can be sold, Stiteler doesn’t
rule out the possibility of rentals.

In addition to their $10 million commitment, Stiteler says he and
Martin have already invested another $15 million in the area, a figure
questioned by other downtown investors. In exchange for their future
financial outlays, the two will soon ask the City Council to give them
$3.5 million in municipally owned land.

“It doesn’t make economic sense to do this alone without a
public/private partnership,” Stiteler says. “When you add the whole
package together, it seems like a reasonable subsidy.”

Martin explains: “The Rialto has had four partnerships in five
years, but nothing’s happened, because it’s difficult to bring in
renters. Almost all of them have to be subsidized by us (the city),
because the market’s not strong enough.”

Plans for upgrading the Rialto block began in 2002, when Doug
Biggers, former owner of the Tucson Weekly, bought the
property, but his ideas for improvements never materialized.

“The main reason I didn’t rehab the block is I had insufficient
capital at key moments,” Biggers says. As to why he didn’t ask for a
city subsidy, Biggers responds: “(Land) swapping was out of my
experience.”

About a year ago, Biggers sold his interest in the block to Martin
and Stiteler, who now have ambitious plans for the Rialto block as well
as the Toole Avenue property.

“We want visible construction in both areas this year,” Stiteler
says.

Martin elaborates: “We want to put in a courtyard behind the Rialto
Theatre, and turn the former Skrappy’s building on Broadway Boulevard
into a cabaret. There’d be outside dining and music and offices
upstairs (in the Rialto building).”

Past publicity has focused on Kwang C. An, owner of the Great Wall
China restaurant and former owner of Sakura, as possibly opening a
restaurant/bar in the Rialto building. Stiteler has also been talking
to Janos Wilder about establishing a restaurant in a nearby space on
Congress Street.

Both Stiteler and Martin insist that without the city-land subsidy,
renting out the Rialto block wouldn’t be economically feasible.

“The city set the stage for this by giving free rent (to nearby
restaurants located in city-owned buildings). We have to have (this
subsidy); it’s the only way we and the city can see to make this a
viable economic deal.”

This proposed subsidy has sent up a red flag for others who have
invested heavily in downtown, including John Wesley Miller.

He developed the Armory Park del Sol subdivision a few blocks south
of the Rialto building, and spent more than $2 million to acquire and
renovate a former department store located on the corner of Congress
Street and Scott Avenue.

“Nobody offered me anything,” Miller says about the latter project.
“Does this mean (the City Council) will give me one-third? I believe in
incentives, but I question the fairness to those of us who invested our
own money, and no payback was given.”

Dominic Moreno owns On a Roll Sushi and is Miller’s tenant on
Congress Street. He also has problems with the proposed development
deal.

“It’s not fair,” Moreno declares. “Here comes some bigwig, and they
can wheel and deal just for themselves.”

On the other hand, two of the members of the City Council’s Downtown
Subcommittee who support the $3.5 million land subsidy have only words
of praise for the proposed deal and Stiteler himself.

“I think what Stiteler is doing is very good,” says Regina Romero.
“Nobody else has said they have millions to invest (downtown). …
Despite the economic situation right now, it will bring much more
activity downtown, and sales taxes.”

Nina Trasoff agrees with Romero. “I believe Scott Stiteler to be a
highly honorable man with a passion for this project. This is going
beyond one project to the whole east end of downtown, so we’re looking
at a vision of the whole thing, and getting it done. … We have to
find a way to encourage now, not when the economy bounces back.”

The third member of the subcommittee, Steve Leal, is much more
cautious in his comments.

“They’re predicating their ability to follow through on external
unknowns (extra funding and the city acquiring the land),” Leal says
about the developers and their Toole Avenue proposal. “In other words,
it’s pie in the sky.”

As for the Rialto block, Leal says: “They’re doing something they
were going to do anyway. The city should provide resources (to
projects) which weren’t going to be done.”

Both councilwomen mention the involvement of the Warehouse Arts
Management Organization (WAMO) in developing the concept for the Toole
Avenue project. However, WAMO board members have reservations about
it.

“The details are so sketchy,” comments printer and warehouse tenant
Dwight Metzger. “I don’t buy it at all.”

Ceramic artist Susan Gamble adds: “It sounds so incredibly vague to
me. It could go south incredibly fast.”

However, the land-transfer between the city and the DTDC that’s
called for in the predevelopment agreement is quite specific.

It states that as soon as 90 percent of the 8,800 square feet of new
commercial space in the One North Fifth project is leased, the
developers will be given a site on Broadway Boulevard near Park Avenue
formerly occupied by a Volvo dealership. According to a city appraisal,
this land is worth almost $2 million.

Stiteler says the still-vacant commercial space in the One North
Fifth building is currently 50 percent leased, and he is talking with a
couple of other potential tenants.

If the Volvo property is included in the final development
agreement, both Leal and Trasoff say that they want to see what the
site would be used for before agreeing to give it away.

The PDA also called for the developers to be given the land where
the Greyhound Bus station once sat, at Broadway Boulevard and Fourth
Avenue, after they completed substantial rehabilitation of the Rialto
block.

Despite that, Campbell—who is now working independently of
Stiteler and Martin—says he will pay either the appraised value
or a similar in-lieu amount for the Greyhound site. He wants to build a
commercial project on the vacant land after acquiring it through a
separate development agreement.

An above-ground, city-owned parking garage is planned across the
street from the land. Campbell says his company will bid to build the
garage. “The goal is that I will work with the city to reduce
construction costs through value engineering,” he says about his
possible involvement.

Furthermore, the PDA mandated that once the Rialto block was 90
percent leased, 35,000 square feet of the Ronstadt Transit Center
fronting Congress Street and Sixth Avenue would be turned over to the
developers.

A provision in the agreement states that if there are environmental
factors which severely impact any of the land to be given away, “the
city will provide (the) developer with a replacement site … or with a
cash reimbursement, either of which will be in an amount at least equal
to the fair market value of the site being replaced.”

Before the PDA was approved, Stiteler sent an e-mail to his partners
outlining his views on the city subsidy. In it, he expressed his
optimism about the future investment value of the property the city was
proposing to provide.

He calculated it could increase in value from a present $4.5 million
to $12.5 million, based on the implementation of city-funded proposals
to be completed in the next few years. These projects include the
modern streetcar and downtown landscaping improvements.

Assuming a better economy in six to nine years, Stiteler went even
further: He estimated the land could be worth $25 million by
then—an almost six-fold increase compared to its present assumed
value.

“I hope the value of the (option) land goes up,” Stiteler now says
in an interview. “If we make a profit, I believe that’s acceptable. I
don’t think anyone is behind us (with such major plans for investing
downtown).”

However, there’s no way of telling if that’s true or not, since the
city hasn’t put out a request for proposals offering other developers a
land swap.

Leal, who is finishing his final term on the City Council, calls
downtown “an attractive place to invest” because of all the
improvements being made in the area. However, he also declares: “If
Stiteler believes in that increase in value (of the land), how can he
say they’re at risk with investments on their own property? If your own
land is (increasing in value), what’s the risk?”

The downtown group that’s being asked to assume the biggest risk may
actually be WAMO. As Stiteler and Martin ask for public subsidies,
WAMO’s vision to preserve the historic Warehouse District as an
affordable area for artists appears to be evaporating.

The first blow came when ADOT concluded that the three parcels of
property the city of Tucson was offering to swap—for about 15
state-owned warehouses—were basically worthless, because of
environmental problems.

The possibility that ADOT may eventually auction off the warehouses
instead of transferring them to city ownership has many artists
worried. They fear that investors, not artists, will end up buying the
buildings, and the dream of preserving the downtown enclave as
affordable studio and gallery space will disappear.

Despite the state’s decision on the land swap, Romero still
expresses hope for the Warehouse District.

“The holistic look at downtown is still in place, because Scott
(Stiteler) believes in the arts component downtown,” she says.

Trasoff adds: “Scott Stiteler really is a master planner. It’s
unfair to criticize someone who has come forward with such a large
investment, and this big a concept.”

The second setback to WAMO occurred after the ADOT land-swap
rejection, when city officials decided to regroup by trying to only
acquire small portions of the Warehouse District from ADOT. In addition
to the Toole Avenue site desired by Stiteler and Martin, the city hopes
to obtain the historic Steinfeld and Citizens Transfer warehouses on
Sixth Street west of Stone Avenue.

The city wants to use Regional Transportation Authority funds to
purchase these two structures—an idea that was previously
rejected by the RTA.

At the same time, some members of the WAMO board are no longer
convinced that the organization should eventually assume management
responsibility for the century-old Steinfeld building.

“Do we want to take on such a huge money pit?” asks Metzger,
considering millions of dollars are needed to rehabilitate the
Steinfeld property. “It’s a great idea, but I don’t know if it’s
financially practical.”

Money is an especially important consideration for the organization,
which has no financial resources of its own. WAMO has yet to obtain
nonprofit status from the federal government and has less than $100 in
the bank while having thousands of dollars in unpaid debts.

The City Council in February did authorize the transfer of $65,000
to WAMO, money which came from rent payments made by Warehouse District
tenants. However, the organization needs to jump through a lot of
bureaucratic hoops if it ever wants to receive that money.

For her part, Gamble is willing to take a risk on the Steinfeld
building.

“I say ‘yes’ to Steinfeld’s,” she remarks. “It may be a money pit,
but it can hold a lot of artists.”

Leal and Romero both say WAMO’s position on the city acquiring the
Steinfeld and Citizens Transfer buildings is critical.

“WAMO’s opinion is very important,” Romero says. “If they have a
different opinion (about the two buildings), the city will have to
change priorities.”

As the arts organization debates its position on that issue, it is
also debating what role, if any, it should play in the final
development agreement between City Hall, Stiteler and Martin.

WAMO’s mission from its inception has been to preserve the entire
Warehouse District. Thus, even though City Council members may believe
the arts organization is supportive of Stiteler’s proposals, only
reservations were expressed at a recent WAMO meeting.

“I don’t think WAMO is smart to support (Stiteler’s) plan until it
hears about the rest of the ADOT-owned buildings,” Metzger says. “We
should advocate for the whole arts district and make that contingent on
our support. … Stiteler shouldn’t feel like he’ll get a slam-dunk
(when the council considers the final agreement) in May.”

At a meeting held last week to discuss the Toole Avenue proposal,
representatives of Romero’s and Trasoff’s offices attended. Marvin
Shaver, WAMO’s president, says that he mentioned the importance of the
other ADOT-owned warehouses, but Stiteler says he doesn’t recall it
coming up.

“My focus is on the three (Toole Avenue) properties,” Stiteler says.
“I’m sensing a lot of support for what I want to build there.”

On the other hand, Shaver emphasizes: “We shouldn’t forget the other
warehouses along Toole that need help. We need a plan of action (for
them),” whether that plan is part of Stiteler’s arrangement with City
Hall or not.

With a draft development agreement between the city, Stiteler and
Martin nearing completion, Shaver says WAMO may take a stand on the
document before it’s presented to the City Council.

“I don’t know what that position will be,” he admits.

This article appears in Apr 9-15, 2009.