After all that's gone wrong with downtown development, you'd think the city would know better by now.
Tucson is broke. But that's not stopping it from selling off a prime piece of downtown real estate to the struggling Gadsden Co. for $250,000. The day that sale goes through, Gadsden will flip the property for $1.43 million to Chicago-based Senior Housing Group LLC, which plans to build a six-story, 143-unit affordable housing project.
Gadsden says the big flip doesn't mean big profits - but that depends on perspective.
The deal, which all sides are pushing to close by Dec. 1, calls for $500,000 to be placed in an escrow account, which the city and Senior Housing Group will use to pay for things like sidewalks and sewer lines. But Gadsden was supposed to pay for those kinds of improvements in the first place - its exclusive development agreement for the site requires it. Now Gadsden's going to use someone else's dough to meet those obligations.
As for the rest of the money Gadsden will land from the sale? That's Gadsden's.
"There is nothing creative about this," said Adam Weinstein, a Gadsden partner. "There is nothing cute about it."
Actually, there is plenty of creativity here. The deal is the perfect fit for a struggling developer, a city desperate for something real to be built downtown and another developer with federal tax credits to burn.
More on that later, but first, a quick bit of history:
Back in 2008 Gadsden signed a deal with the city to develop 14 acres on the west end of downtown, just west of the Santa Cruz River and south of Congress. The site has been a dust bowl for years, but Gadsden has big plans for it: roughly 400 housing units, shops, office space, and a "boutique" hotel, along the planned streetcar route.
The city offered the property to Gadsden at a bargain rate - but split it into four phases. In order to claim the property's second phase, Gadsden had to complete certain goals for phase one. The original deadline was supposed to be March 2009, but Gadsden has yet to deliver, and earlier this year the city extended the date to March 2011.
"So far, I've seen very little progress in that regard from Gadsden - virtually nothing," city attorney Damian Fellows wrote in a recent e-mail to staff. "Instead what I see is an urgency created by Gadsden to gain staff's assistance to effectuate its goal to profit off of land speculation.
"Gadsden's overriding objective, it appears to me, is to flip this property while ignoring its obligations under the existing Development Agreement."
Why the urgency? Enter Senior Housing Group and its president Steve Greenbaum, who has a deadline to spend 10 percent of his project's overall costs in order to claim his federal tax credit. That deadline was Dec. 1, but has since been pushed to June 30.
Greenbaum approached Gadsden about buying some of the city land for his tax-credit financed project. It seemed a good fit. The Gadsden development calls for affordable housing, and Greenbaum liked the overall plan and close amenities.
But the property Greenbaum and Gadsden agreed to is designated for the third phase - and Gadsden still hasn't met its obligations for phase one.
The cure? Turn phase three into phase one. Then give Gadsden credit for the roughly $26 million Greenbaum is spending on construction.
"In our development agreement, you'll see some milestones, performance milestones we have to do," said Jerry Dixon, a Gadsden partner.
"We have to do $10 million in phase one before we can take down phase two. Well, here we will do $25 million in phase one, which we think gives us the right to take down phase two and phase three."
City officials either don't see anything wrong with the Gadsden flip, or won't admit they see anything wrong with it.
In an interview, Fellows, the city attorney, backed away from his earlier critical e-mails. The deal is sound, he said. Some of his criticism was based on a misunderstanding about what parcels were being flipped.
Meanwhile Councilwoman Regina Romero and City Manager Mike Letcher called it a "win" for the community. Gadsden, they said, has hung tough through the recession while making a huge investment in this project and the neighboring Mercado San Augustin.
"We have a developer who is really struggling," Romero said. "These developers, hate 'em or love 'em, this particular group is really looking out for the needs of the community, really trying to do the right thing."
Everyone involved insisted the city can't just cut Gadsden out, even though the city still owns the property, because Gadsden has a development agreement. Never mind that Gadsden hasn't fulfilled its obligations and would be in default if the city hadn't extended the deadline to give Gadsden time to finish the deal with Greenbaum.
Jessie Sanders, Rio Nuevo project coordinator, said the city hasn't held up its end of the deal, either, noting it never delivered on any of the promised west side Rio Nuevo projects, which could put the city in a legal bind.
"When you look at the development agreement, both sides have not performed up to the level, and if somebody wanted to, you know, this could get really ugly," Sanders said. "This is what I've told all sides: Our job is to find success in a way that passes the sniff test for whoever wants to be negative."
Well, with that said, take a deep whiff and decide for yourself.
Contact columnist Josh Brodesky at 573-4242 or firstname.lastname@example.org