Sam’s Club axed by Tucson

After four years of negotiations, the elected officials of the City of Tucson (COT) voted unanimously to kill the sale of 22 acres at the northwest corner of Irvington and I-19. The City canceled the purchase option it had with Irvington Interstate Partners, an affiliate of Irvington Interstate Manager, LLC (Paul Schloss, manager) in September, 2011, when it was ready to sell the property for $4 million ($182,000 per acre) for development of a Sam’s Club.

The City however, ignored its own contractual land use restrictions on the property that it conceded in 2009 to the developer of the southwest corner of Irvington and I-19, the Barclay Group of Scottsdale, for the Home Depot and Target anchored, Tucson Spectrum. According to the Arizona Daily Star, the deal with the Spectrum provided encumbrances to restrict retail competition that favored the Tucson Spectrum until 2017. Restrictions such as these are certainly not uncommon, intended to persuade developers into economically disadvantaged areas, however, this restriction was never recorded. So who knew?

When the Barclay Group heard of the potential sale, in August 2011, it filed a claim against the City for a $112 million, just before the City decided to cancel its purchase option the Irvington partnership. This in turn prompted the Irvington partnership to file its own claim for $13 million against the City, for negotiating in bad faith.

Last October, the council re-opened discussions with the Sam’s Club developer, when the Tucson mayor and city council discussed the lawsuit and revisited the potential sale of this property. The following excerpt is from this Executive Session meeting dated Oct. 23, 2012:

“… it was moved by Council Member Romero, duly seconded, and CARRIED by a voice vote of 6 to 1 (Vice Mayor Kozachik dissenting), to authorize negotiations with Irvington Interstate Partners regarding possible terms for a sale and purchase agreement pursuant to the following conditions:

1) Interstate shall commit to analyze the feasibility of limiting the size of the retail development to less than one hundred thousand square feet in compliance with the City’s large retail establishment ordinance and that the City will reject Interstate’s proposal in the event that Interstate determines that it will not limit the retail development as described.

2) Interstate shall commit that as part of any purchase of the property; it will take the property subject to any enforceable condition on retail development on the site and will indemnify the City against any claims relating to such prior conditions on the property.”

Developers can’t easily redesign store sizes to oblige Tucson. The City passed the big box ban in 1999. Since then, the City should have learned from lessons such as The Bridges of Tucson, where a decision to waive the big box ban was met by cheering Southside residents in support of the waiver. Jobs were important on that day in 2007, and could be argued even more important today, with unemployment even higher.

It also seems a far-stretched idea for the City to ask a private developer to accept liability for any maltreatment of the City’s own contractual land use restrictions.

Sam’s Club would have been completed this year, in an underdeveloped, economically poor area in Tucson’s Ward One. It would have added approximately 160 new jobs; it would have brought about $4 million to the city coffers from the sale and as much as $750,000 more in impact fees. In addition, it would have brought an estimated $1.5 to $2 million annually in sale taxes for many years to come.

The Irvington partnership still has time to move forward with its claim against the City if it so elects.

However, many questions linger for the public following the death of this project. Why did the City allow such a long time lapse, after full disclosure was made that the site was going to be used for development of a 136,000 sq. ft. Sam’s Club? Shouldn’t the City Planning Department be privy to contractual land encumbrances for city property? How can a city plan without knowing where encumbrances lie? Then, exactly how far reaching are these retail restrictions for Tucson Spectrum, across the street, within a one-mile radius, two-mile, or more?

No one we spoke with at Tucson City Departments was able to answer any of these questions at this time.