Plans to redevelop an abandoned neighborhood near downtown Mesa have hit a snag that threatens to unravel the project later this summer.
The $23 million housing complex in the Escobedo area enjoyed strong support from Mesa until the city learned the developer’s lender may want to maintain a stake in the property for 65 years.
Mesa had been negotiating the deal under a 30-year timeline since Wisconsin-based Gorman and Company proposed the complex early this year.
But as the City Council heard one of the final updates on the project Monday, they balked at the extended terms.
City Manager Chris Brady told the council it was “discomforting” that Mesa was told of the new terms so recently.
“It’s not typical for us to come to you with an agreement with the idea that the other side is saying, ‘We’re probably going to change it,’” Brady said.
The deal had been structured for Gorman to demolish 101 city-owned apartments dating to World War II and use state tax credits to construct more than 100 units for low-income and moderate-income families. A nonprofit, Save the Family, would have an option to buy the site in 15 years. Or, Gorman would be obligated to buy the property in 30 years at the fair market value of the land.
The first phase of construction would begin this fall in Escobedo, which is north of University Drive and east of Center Street. A second phase would begin in one or two years.
Brian Swanton, a Gorman executive who oversees its Arizona projects, said the company has always structured 30-year deals but was itself surprised when potential lenders said tax codes require a longer term in this case because Gorman would be leasing the land, not owning it.
Mayor Scott Smith urged Gorman to find a way to keep the original terms because the council might reject the deal if Gorman can’t structure a 30-year term.
“It’s Gorman’s burden to make that deal work,” he said.
The City Council is now on its summer break and will next meet on Aug. 16. While the council approved Gorman’s plan on a 30-year term, Gorman will need to request a change if it changes the financial package.
“I’ll do everything in my power not to have to come back to you,” Swanton said.
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