Phoenix, CityNorth developer clash - USATODAY.com

Phoenix's effort to revoke its $97.4million development agreement with the developer of CityNorth has gotten off to a rocky start.

Phoenix sent a letter to an attorney for the Klutznick Co. arguing that Klutznick has defaulted on the terms of the agreement.

Scott Hershman, who said Tuesday that he had not been in contact with the city, responded with a demand for the full amount of the agreement, claiming the city was interfering in the company's contractual rights. He also threatened a lawsuit.

The City Council in October directed city staff to study how to end the contract, which the city spent more than $750,000 in court defending from 2007 to 2010.

The agreement with Klutznick calls for the city to share with the developer half of the sales taxes generated at the northeast Phoenix project for 11 years and three months, or a maximum of $97.4million. The sharing agreement would start after the developer opened 1.2million square feet of retail space, plus parking structures with more than 3,000 free spaces.

An Arizona Republic analysis in 2009 indicated that for the project to bring in $97.4million over its lifetime, it would have to be one of the most successful retail projects in the nation.

CityNorth was envisioned as a $1.2billion project that, upon completion, would have about 6million square feet of mixed-use development. To date, 175,000 square feet of retail has been developed.

If the Klutznick Co. does not agree to walk away from the deal, the city will have to seek a legal settlement.

Meanwhile, Deputy City Manager David Krietor maintains that the agreement will never take effect. No progress has taken place on the project since 2008, when Phase 1 opened.

Phase 1 now is under separate ownership from the remainder of the 144-acre parcel, and a Klutznick Co. subsidiary, Northeast Phoenix Partners, is on the hook for a legal judgment of more than $100million in an unrelated case. It may need to use the land to satisfy the judgment.

by Michael Clancy The Arizona Republic Nov 19, 2011


Phoenix, CityNorth developer clash - USATODAY.com