DESERT LAW BLOG

WAVEYARD IN MESA LIVES ON

I wrote back in December that the massive waterpark/hotel/commercial development named Waveyard to be built in Mesa was delayed indefinitely due to inability to obtain financing.  Under the agreement with Mesa, the developers had until January 2010 to show they had secured full financing for the $750+ million project.  Obviously in this real estate environment that is virtually impossible.

With the deadline approaching the city had a couple of options.  They could have let the deadline expire and make the developers re-apply for city approval at a later date.  Or they could simply extend the deadline.  The city chose the latter option, which makes sense to me.  The land is currently still owned by Mesa and continues to be used as a municipal golf course - so it isn't an eyesore.  And the voters of Mesa had to approve the project, and did so 65-35 back in 2007.  The state of the economy means that it is unlikely extending the deadline will prevent something else from being developed on the property.  So to me there really isn't much downside to the city simply extending the deadline to see if the credit markets get better and it becomes feasible to build the project.  The deadline to secure the financing was extended to July 2011 and other key dates were moved back.

Now, whether the tourism, commercial and hotel markets rebound enough by mid-2011 is another question.  The way things are looking right now, the hotel and retail markets are incredibly overbuilt in the Phoenix metro area and many prognosticators think Phoenix is in for a minimum 5 year drought in building in these sectors.  So it will be interesting to see if there is a point where Mesa finally stops extending the deadline and/or the developers throw in the towel.  Although I'm still not optimistic that the project will even get started in the next five years, I'm still a fan of the project and hope that it gets built someday.  If my pessimism is misplaced and the markets recover in time for Waveyard to meet the 2011 deadline, it will mean the entire Phoenix commercial real estate market is feeling a lot healthier.  And that would be a good thing.

LIGHT RAIL RIDERSHIP SLOWS IN THE HEAT

June marked an expected slowdown for light rail ridership as ASU students headed home and Arizona heated up - keeping tourists away.  Average weekday ridership slipped below 30,000 for the first time.

I expect July and August numbers to stay pretty low as well.  Since this is the first year of the light rail, every month is setting the benchmark against which months in future years will be judged.  So next year's data will be closely watched for the year over year change.

PHOENIX LIGHT RAIL WEEKEND HOURS EXTENDED PAST CLOSING TIME

Many have complained that one of the original visions for the light rail had not been realized when Metro decided to only run light rail trains until 11 pm - that of decreasing drunken driving.  Fortunately, Metro has now decided to remedy that decision and extend light rail hours on Friday and Saturday night past 2 am (the typical bar closing time in Arizona).  This change will begin on July 1st.

This move puts Phoenix out in front of many other cities that discontinue service before closing time.  With the toughest DUI laws in the nation, it is good to see Arizona starting to figure out ways to mitigate drunk driving, as opposed to just trying to capitalize on it as a revenue source.

WIGWAM RESORT FINDS A PROPERTY MANAGER TO REPLACE STARWOOD

The Business Journal reports today that Destination Hotels and Resorts will take over from Starwood at the end of May as the property manager for the Wigwam Resort - which is in receivership waiting to be auctioned in June to a new owner.   Starwood declined to renew its management contract which was expiring at the end of May.  According to their website, Destination is the fifth largest independent management company in the U.S. and currently manages the Royal Palms in Phoenix and the Tempe Mission Palms in Tempe.

No word in the article on the status of employees at the Wigwam, but presumably a fair number of them will be retained by Destination to provide continuity to the operations of the Wigwam.

PHOENIX LIGHT RAIL RIDERSHIP UP IN APRIL

Numbers are in for April for Light Rail ridership (the fourth full month of operations).  After a slight drop-off in March, ridership hit one million riders for the month for the first time in April and weekday average ridership increased from 34,376 in March to 37,386 in April.  That's the highest yet.

PHOENIX LIGHT RAIL RIDERSHIP UP AGAIN IN FEBRUARY

The Business Journal reports that light rail ridership increased from January, averaging over 35,000 per day, each weekday in February.  That is up from a weekday average of 30,600 in January.  The original estimates made by Valley Metro is that weekday ridership would average 26,000.  So far ridership is far outstripping that estimate - a good sign for the light rail.

I'm looking to see if ridership drops off somewhat after the initial curiousity factor wears off - as I suspect some people are riding just to see what it is like.  But so far, no drop off.  It will be interesting to see what effect warmer temperatures have on it in a couple of months.

TAX INCENTIVES APPROVED FOR GAYLORD HOTEL/RESORT IN MESA

Mesa voters approved a $51 million tax incentive yesterday for Gaylord Entertainment Co. to assist in developing a massive golf/hotel resort and convention center on the former GM testing grounds.  The convention center is expected to be more than double the size of the downtown Phoenix Convention Center when built.  It is the first step in owner and master developer DMB Associates' plans to develop the 5 square mile tract of land.  If you really have a lot of time on your hands, you can read the 289 page Development Agreement here (big pdf).

The tax incentive had to be voted on by the residents of Mesa because their city charter requires a vote of residents for tax incentives higher than $1.5 million.  Under the deal, Gaylord gets to keep up to $51 million of "bed tax", but is required to spend most of it for tourism promotion.

The real question I have is whether the Goldwater Institute will challenge this tax incentive as unconstitutional under the Arizona Constitution like they did the Phoenix incentive for CityNorth.  The difference between the two seems to be that Gaylord is required to spend the tax incentive on promotion of tourism - something that benefits Gaylord, but also could be argued to benefit Mesa (the public) in general.  In the CityNorth deal, the public benefit seems a little more debatable.  After the CityNorth appeal is heard and decided upon by the Arizona Supreme Court, we may have a little more clarity about these types of tax incentive deals.  More details on the CityNorth case are here.

Timing of building the resort is up in the air because of the current economic environment.  With credit so tight and tourism/convention business way down in Phoenix, Gaylord will have to wait awhile before initiating the project.  The economic downturn has already claimed one other massive deal in Mesa that got taxpayer backing, the Waveyard project (delayed indefinitely according to reports).  The development agreement in this deal requires Gaylord to start construction on both phases of the resort project by the end of 2011.

More details from the Republic on the project and support and criticism of it can be read here.

ILX RESORTS FILES FOR CHAPTER 11 BANKRUPTCY

Phoenix-based ILX Resorts, a timeshare resorts owner and operator and real estate development company, filed for voluntary Chapter 11 bankruptcy protection today - seeking to reorganize and continue operations. 

From ILX's website:

ILX Resorts acquires, develops, and operates premier timeshare resorts primarily in the western United States that provide its owners with extraordinary vacation experiences. ILX's portfolio of world-class properties includes eight resorts in Arizona, one in Indiana, one in Colorado, one in San Carlos, Mexico and land in Puerto Peñasco (Rocky Point), Mexico and Sedona, Arizona, both of which are in the final planning stages. It also, through Premiere Vacation Club, has acquired, and continues to acquire, inventory at the Carriage House in Las Vegas and in addition has acquired inventory at the Scottsdale Camelback Resort in Scottsdale, Arizona.

No doubt the falling occupancy rate of Arizona's hotels and resorts due to the recession has taken its toll on the company.  From their press release, it sounds like they were also having trouble with their outstanding credit facility - although it doesn't specific what.

UPDATE ON PHOENIX LIGHT RAIL RIDERSHIP

Many skeptics thought that the new Phoenix light rail wouldn't live up to the hype and ridership would come in under what was projected.  So far they are wrong.  Light rail ridership in its first full month exceeded projections by 15%.  The Republic has a rundown here.

Interestingly, ridership on Saturdays has far exceeded expectations, meaning that the numbers may still have some built-in extra riders who are riding for the novelty of it.  We will see what the numbers look like as we get further into the year.  Ridership is expected to increase as more people move to live near stations and businesses locate within walking distance of stations.

MONTELUCIA GETS PRESIDENTIAL STIMULUS

The newly-opened Montelucia Resort in Paradise Valley, recently put into foreclosure but still operating, is reportedly hosting President Obama tonight as he spends a night in Phoenix prior to revealing his plans tomorrow to help out U.S. homeowners who are facing foreclosure.

President Obama will be speaking tomorrow at Dobson High School in Mesa on the federal government's plan to use of a portion of the previously-allocated TARP money that will now be used to help out homeowners instead of going to banks.  The amount to be allocated is expected to be between $50 and $100 billion - no small chunk of change.

ALOFT HOTEL TO OPEN TOMORROW IN TEMPE

Troubled developer Triyar Hospitality will celebrate a bit of good news tomorrow with the opening of their new aloft hotel in Tempe.  The hotel will cater to business users but will be helped by event traffic in Tempe/ASU and its central location (at Rural Road and the 202).  From the looks of the pictures on their website, the hotel concept is particularly catering to young professionals, with VH1 reality-TV inspired interior design.  I can't tell if they have the facilities to try to build on the trendy lobby-bar scene cultivated in other cities years ago and finally reaching it's way to Phoenix, but no doubt more than a few ASU students wanting more of a scene without the long drive (and DUI checkpoints) will end up here.

aloft is managed by Starwood, which also teamed up with Triyar on the W Hotel Scottsdale - now being foreclosed upon by HSH Nordbank.  Hopefully this effort has a few less problems.

Article on the opening from the Republic can be read here.

ARIZONA CARDINALS BRING UNEXPECTED BENEFIT TO THE WESTSIDE

Even though I am not an Arizona Cardinals fan myself, it's hard not to get excited about the team actually winning a couple of playoff games (more than my team has done for over a decade).  And as fate would have it, the right teams won to grant the Cardinals another home game.  I'm sure the folks at Westgate are extremely happy to have another huge event at University of Phoenix Stadium - and an unexpected one at that.  No doubt it will be an economic boon to Glendale and I'm sure the servers, bartenders and valets out there are extremely pleased they will be able to earn a little extra cash in a difficult economic time.

LIGHT RAIL TO BENEFIT DOWNTOWN TEMPE

Mike Padgett at ArizonaNotebook.com has a great write-up here about Phoenix light rail's potential impact on Tempe.  He interviews various Tempe business leaders and gives some color to the expected changes light rail will bring to the area.  It's a good read.

I tend to agree with the people Mike interviews in the article that downtown Tempe has as much or more to gain than any other area currently on the light rail because it is already developed as a destination with the Mill Avenue area.  In fact, Mill Ave is really the only developed commercial and entertainment district currently on the light rail (downtown Phoenix still has a long ways to go and is very spread out compared to Mill). 

If I was a convention-goer from out of town staying in the new downtown Sheraton and wanted to go check out another part of Phoenix metro for dinner, a drink or a movie, I would just jump on the light rail to go down to Mill Ave - saving the cost of transportation to another commercial area (such as Old Town in Scottsdale).  And that's good news for Tempe.

My previous posts on Phoenix light rail are here and here.

Update:  The District restaurant in the downtown Sheraton is one of the first to announce discount deals for light rail riders - perhaps working on getting people from Tempe to come spend some money in downtown Phoenix.

PICTURES FROM MY DOWNTOWN PHOENIX TOUR YESTERDAY

Here are a few pictures from my time spent downtown yesterday on the new Phoenix Light Rail, touring the new North Wing of the Phoenix Convention Center and checking out the new downtown Sheraton.

PHOENIX LIGHT RAIL AND NEW WING OF CONVENTION CENTER OPEN TODAY

Phoenix is marking the opening of its new light rail system with parties along the route today from 10 am til 5 pm.  I'll be heading downtown this afternoon to check it out.  All rides on the light rail are free until the 1st of the year and then will be $1.25 per ride or $2.50 for an all-day pass.  This link from AZCentral has a lot of information on the new light rail, including maps, slideshows and articles.  Here is the ValleyMetro home page.

Phoenix is also having a party today to celebrate - in conjunction with the light rail running past it - the grand opening of the new North Wing of the Phoenix Convention Center - an additional 550,000 square feet of convention space in downtown Phoenix.  More information on the event can be found here.

Both the light rail and convention center expansion should help in revitalizing downtown Phoenix.  The convention center expansion in particular is driving new demand for downtown hotels which will bring more consumers downtown.  The first hotel to open that will help service downtown convention-goers is the new Sheraton - Arizona's largest hotel at 1,000 rooms.  It opened this fall and is a short walk from the Phoenix Convention Center, US Airways Arena, Chase Field and other downtown businesses.  And now with the light rail, people staying downtown can travel to locations like Mill Ave. in Tempe without needing a car.  ASU downtown campus students will also be able to easily get to and from main campus in Tempe

Update:  Coverage from the Phoenix Business Journal is here.

WAVEYARD IN MESA ANOTHER (NEAR) CASUALTY OF THE RECESSION

The Arizona Republic reports that the $750 million waterpark/commercial/hotel development in Mesa named Waveyard has been stalled indefinitely due to lack of available financing.  The project was slated to be a water-themed amusement park boasting the world's first truly surfable man-made waves.  The developers planned it as a mixed-use project with hotel and retail complementing the water park.  I'm guessing in this extremely difficult commercial real estate environment that they haven't been able to secure the retail tenants (or perhaps the hotel) that they need to lock up their financing to build the project.  And even if they had the tenants, financing is still very difficult to obtain.

According to the article, the developers have until January 2010 to secure their financing and purchase the development site (the former Riverview Golf Course site and surrounding ballfields that the voters of Mesa approved for sale to Waveyard back in 2007).  As with CityScape, the developers are trying to put on a happy face, mentioning that they are still paying their employees who are working on the pre-construction work and are working on deals to build sister amusement/water parks in Dubai and South Korea.

Unfortunately, both Dubai and South Korea are also suffering heavily from the worldwide economic slowdown.  Dubai is seeing their massive real estate bubble pop and their sovereign wealth funds decimated by their investments in U.S. and European securities - leaving them with less government money to fund their tourist development projects.  South Korea has seen significant devaluation of the won and has an even higher level of consumer debt than the U.S.   Neither region seems ideal for starting a large tourist development - as consumer spending drops precipitously in both areas.

Nevertheless, if I had to guess where the concept will show up first, it is in Dubai.  Their government has shown it is willing to fund unique tourist projects (as witnessed by projects like this).  As for Mesa, I have a feeling that the expected worsening of the commercial real estate market over the next year may kill Waveyard here.  Hopefully not, as it makes a lot of sense to have a top-level waterpark in a place that is hot for so many days out of the year.  Big Surf and Sunsplash just don't seem to cut it...

Previous articles about Waveyard can be read here and here.