PHOENIX, AZ - Although a growing number of businesses plan to open in the downtown Phoenix project called CityScape, the worsening economy is forcing developers to scale back other parts of the three-block, $900 million plan. Construction of more than 1,000 condos in the project, which straddles both sides of Central Avenue and First Street, between Washington and Jefferson streets, has been put on hold.
The downsizing from CityScape's original plans, which were unveiled in 2007, is another sign that the deepening recession is taking a toll on a constellation of multimillion-dollar projects designed to bring jobs, shoppers and residents into downtown Phoenix. Plans for two 500-condominium buildings have been postponed until the housing market recovers. Construction issues also prompted a developer to eliminate 65 planned apartments.
There are other changes, project officials say: One planned hotel, Twelve, is no longer part of the project. However, a 34-story tower, the future home of a 250-room Hotel Palomar and 165 condos, is under construction. P.F. Chang's has pulled out of the project but may open a restaurant later. It will be replaced by a steakhouse from Fox Restaurant Concepts. Wachovia, the anchor tenant in the project's 27-story office tower, could withdraw. Wells Fargo, which already has a downtown Phoenix high-rise, has plans to acquire the bank. The list of tenants now includes a gym and a retail outlet, and developers hope to add a drugstore soon.
"The market is worse than it was three years ago," said Keith Earnest, a vice president at RED Development LLC, a CityScape developer. "Hopefully, we are at the bottom. We have a great location, and we continue to be optimistic."
CityScape is part of a regional effort to build momentum downtown. In recent years, state and local leaders have poured billions of dollars into light rail, an expanded convention center, an Arizona State University campus and other ventures. But the national economic crisis has left its mark. ASU's downtown campus was caught up in universitywide cutbacks, high-rise condos are selling slowly and a group of developers shelved a high-profile plan for an entertainment district near US Airways Center.
Shops, which are a key part of CityScape plans, are also guarded about committing themselves to being a part of the city's revitalization at this time, an expert says. "Retailers are struggling making any kind of margin or profit on the sale of products. Product prices are driven down to the bare minimum," said Dennis Hoffman, an economics professor at the W.P. Carey School of Business at ASU. In better times, businesses that sign up for a project like CityScape could look forward to strong demand from nearby workers, students and tourists, he said. Today, "the words 'uncertainty,' 'unease' would certainly apply to a project like this," Hoffman said.
Losing CityScape condos and apartments is a significant setback because Phoenix leaders have aggressively pushed for projects that would bring residents downtown. It was inevitable that the housing crisis would impact CityScape, Phoenix Mayor Phil Gordon said. "I am disappointed, but when tens of thousands of people are losing their homes, we need to stabilize that before we add more," said Gordon, who has staked his political career on downtown Phoenix's success.
Even with the downturn, CityScape has attracted highly desirable shops and firms, he added. "While other projects (in the Valley) have been put on hold, this project is moving forward." The city sweetened the CityScape deal with $120 million in tax-relief and parking It offered zero and then reduced-rate taxation and will pay for construction of a new parking garage.
The deal requires developers to build 60 housing units in the first phase, the mayor said. If the developers don't build the housing, they have to add something else acceptable to the city. The first two blocks of CityScape, which include the office tower, Hotel Palomar and retail plaza, are under construction. The project broke ground in 2007. The first shops and offices will open in 2010. RED executives, who are shepherding CityScape's early phases, argue that there is plenty of good news, too.
RED is in talks to bring the first drugstore downtown in at least a decade. "We hope that we can make an announcement by the end of the year," Earnest said. Cityscape already plans to open a 9,000-square-foot AJ's Fine Foods, the neighborhood's first grocery store in nearly three decades.
Of the 565,000 square feet of available office space, 230,000 square feet has been leased, he added. More than 50,000 of the 200,000 square feet of retail space has been leased, RED says. That includes Gold's Gym, and fashion and novelty retailer Urban Outfitters. And when the Feb. 15 NBA All-Star Game comes to Phoenix, a section of the CityScape site will be part of the action, said Gary DuBrock of Barron Collier Co., another CityScape developer.
The CityScape block with the sidelined condos and hotel, the area bounded by Washington, Jefferson, First and Second streets, will be used by TNT for broadcasts. This month, crews started tearing down a former JCPenney building at 125 E. Washington to make space for the TV trucks.
In the year ahead, Barron Collier, which wants to build a hotel and condos on that block, will be watching for signs of economic recovery. DuBrock, a real-estate asset manager for Barron Collier, said, "If the mortgage market and the financial markets straighten out, it could happen."
Source: azcentral.com