East Side Story

Downtown's future will be shaped in part by what's about to happen in the area around the Rialto and the Warehouse District

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.