Westcor turns back state land for Palisene

A regional-mall site intended for Westcor's Palisene project is going back to the Arizona State Land Department.

Westcor and the Land Department reached an agreement last week to end Westcor's 99-year lease of 112 acres of state trust land northwest of Scottsdale Road and Loop 101.

"We're getting the piece back intact," state Land Commissioner Maria Baier said. "It's ready for the next healthy market."

The property can be auctioned again as the commercial real-estate market recovers, Baier said.

The settlement puts a halt to Westcor's 20-year plan for a mall and mixed-use development on the state land just west of Scottsdale Road in Phoenix.

It stalls planning and development of roads, utilities and flood control for thousands of acres in the Paradise Ridge area.

Westcor was the sole bidder four years ago to lease the 112-acre Palisene site for $32 million, with the obligation to invest $67 million for development improvements that would have served the broader area of state land northwest of Loop 101 and Scottsdale Road.

Scott Nelson, Westcor vice president of development, said the property is some of the best-located land in the Valley but it lacks water, sewer, streets and flood control.

"There is not a comprehensive drainage solution to allow for development to occur," Nelson said. "That became the impetus for canceling this lease."

It was difficult for Westcor to walk away from the site after spending so many years planning for its development, he said.

It's still going to be great real estate," Nelson said. "The community and the cities (Scottsdale and Phoenix) need to look hard at how this area should be developed and how to get the public infrastructure funded."

Baier said Westcor had planned on recovering infrastructure costs from Phoenix but that was no longer possible after Arizona Supreme Court rulings on development agreements involving CityNorth at 56th Street and Loop 101. The court in 2010 put strict limits on municipal tax incentives to ensure there is clear public benefit.

Westcor, a division of Santa Monica, Calif.-based Macerich, paid $1.26 million in lease payments to the Land Department through 2010 and deferred its $1 millionpayment for 2011.

The settlement, reached with the help of a mediator, divides $18 million in an escrow account with $10 million going to the Land Department and $8 million to Westcor, Baier said.

The Land Department keeps $1.26 million of Westcor's lease payments but reimburses Westcor $1.1 million for its $2.5 million in expenses in developing a master plan for the site, Baier said.

The Land Department plans to spend $8 million of the funds from Westcor to improve the area's infrastructure, which will make it more valuable for development, she said.

Westcor for at least two decades targeted Paradise Ridge northwest of Loop 101 and Scottsdale Road for a regional mall. In 2005, company officials unveiled conceptual plans for an ambitious mixed-use plan for the area in partnership with the Landmark Land Co.

The Palisene shopping center was to include 1 million square feet of high-end retail, restaurants and entertainment on 72 acres. Westcor envisioned a 2,100-acre mixed-use project at Paradise Ridge with offices, homes and condominiums, a hotel and buildings rising to 17 stories.

With the economy in high gear, developers were racing to build major mixed-use projects in the Northeast Valley including CityNorth, Scottsdale Quarter, One Scottsdale and Palisene.

CityNorth and Scottsdale Quarter got built and struggled out of the gate in 2009 as the economy faltered. Westcor went ahead with acquisition of the Palisene site in April 2008 and later that year announced plans for a retractable roof for the shopping center.

But retailers pulled back as the recession hit. In the past year, Westcor tried to land a luxury outlet mall for the site but was unsuccessful.

Nelson said it is hard to say if the company would once again pursue the Palisene site in a future state land auction.

by Peter Corbett - Jun. 7, 2012 11:43 AM The Republic | azcentral.com




Westcor turns back state land for Palisene