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New City Hall may help boost downtown Chandler

CHANDLER — Local businesses and residents are welcoming Chandler’s future City Hall building as a way to rejuvenate the downtown area, but many are concerned about parking and construction problems.

The estimated cost of the Chandler City Hall building is $75 million for the 120,000-square-foot complex located between Arizona Avenue and Washington Street at Chicago Street. The development will continue despite the current economic downturn.

“Downtown Chandler is starting to walk their talk,” Images at San Marcos Salon and Day Spa co-owner Pete Pastore says. “It should help everyone.”

Downtown Chandler is a unique area because it contains a majority of small businesses and no chains. It has been easy for people to over look the downtown area because it is not appealing to the eye and not well known, Chandler resident Brian Jutting says.

“I would be more attracted to it if I heard these renovations happened,” Jutting says. “I wouldn’t have to drive very far, and it would be worth it.”

Construction of the complex is set for early next year because many of its departments are in leased space, and the leases do not expire until December 2010. It will cover nearly two city blocks, including a five-story stone and glass building, the Chandler Museum, chambers and two parking garages.

Chandler has leased office space since the early 1980s, and with an estimated population of 251,060, city leaders view a new City Hall building as essential for redeveloping downtown Chandler.

The facility will give citizens better access to many of the city’s major departments and divisions including: Mayor and Council, City Manager, City Clerk, City Attorney, Community Services, Economic Development, Human Resources, Communications and Public Affairs, Neighborhood Resources and Management Services.

Chandler City Hall building is also going “green,” intending to achieve a gold certification level within the Leadership in Energy and Environmental Design (LEED) rating system, a program encouraging the design of environmentally-friendly buildings.

The Downtown Chandler Community Partnership (DCCP), a nonprofit group whose mission is to promote and develop the downtown area, is doing everything it can to make downtown Chandler as successful as possible, says Kelly Wandelear, the group’s vice president of district relations and co-owner of Mind Over Splatter.

“The city sees the importance of a healthy downtown, and the City Hall building will play a major role in making downtown a destination,” Wandelear says.

The DCCP also holds events such as the Downtown Chandler Art Walk and Farmer’s Market to bring people to the area.

One of the concerns about the new building for merchants and residents is construction. Parking could become a problem because people will not know where to park due to the construction, Pastore says.

Wandelear says she was more concerned with the work underground and how it will affect the merchant’s utilities.

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>>Email the reporter at aklaw@zoniereport.com.

Developer bankruptcies grip Arizona, HOAs

TUCSON — As the sun sets over the mountains far to the west, Aldea del Rey, a townhome complex about 30 minutes southeast of Tucson, takes on an otherworldly air.

The project’s developer, Michael Teufel, abandoned construction here last year when his company, Pathway Developments Inc., ran into financial difficulties.

Many months later, the uncompleted homes are returning to a state of nature.

Huge growths of sagebrush line both sides of what might otherwise be a quiet suburban street. Bees swarm noisily around a beehive hanging from the eaves of one unfinished home.

Other incongruities abound. On an otherwise empty lot, a child’s bicycle lies marooned at the bottom of a deep ditch. Birds flutter through wooden frames bleached by the sun.  Sprinklers churn on a well-manicured golf course only a few yards from houses scarred by broken windows and graffiti.

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This ghostly subdivision is a dramatic illustration of a much larger phenomenon taking place in Arizona: a rash of bankruptcies sweeping through the state’s home building and real estate development industry.

Earlier this year, builders were already reeling from the sub-prime mortgage meltdown and from home inventories swollen by overbuilding, both of which drove home prices relentlessly lower.

The recent financial crisis, however, which has robbed many businesses of their ability to borrow money, has administered the coup de grace to a number of developers.

As creditors come calling, many companies find themselves fatally overleveraged.

Pathway – which filed for liquidation bankruptcy in late September, with liabilities that may total as much as $150 million – is a perfect case in point.

Dozens of other developments are similarly troubled.

Their names are compiled in a list created by the Arizona Department of Real Estate to warn potential homebuyers from buying into distressed developments. Almost 60 developments throughout the state are listed. [Download the list here.]

The bankruptcies are retribution for the speculative fever that gripped the state’s real estate market between 2004 and 2006, says Arizona Real Estate Commissioner Sam Wercinski.

“The builders were selling to investors for quick money, and it bit them, it bit them in a bad way,” says Wercinski.

Thousands of homes ended up in the hands of overleveraged speculators, who took a beating when home prices began to crash.

“These were investors buying homes, not families,” says Wercinski. “They were just riding the market.”

Still, estimations of the overall health of the Arizona real estate development industry vary.

According to Wercinski, “most of our homebuilders in Arizona are still financially healthy.”

Others disagree. John Fioramonti, senior managing director with the nationally recognized real estate consulting firm Meyers Builder Advisors, believes that that the market forces now at work will fundamentally alter the makeup of the building trade over the next several years. Fioramonti has spent almost 35 years observing Arizona’s real estate industry.

“You’re going to see tons of consolidation, in the form of builders buying each other out,” Fioramonti says. “You’re going to see tons of builders going out of business altogether.”

Indeed, it is hard to see how many builders can remain in strong fiscal shape. Recent statistics show Metropolitan Phoenix leading the nation in home price depreciation, with existing homes shedding an average of almost 31 percent of their value between August 2007 and August 2008, according to a report by the Case-Shiller Home Price index.

Foreclosures continue to sweep through the state at record pace, bringing thousands of new homes into the market at rock-bottom prices, and presenting further competition for new offerings from homebuilders.

As unsold new homes sit on the market, increasing numbers of developers are simply walking away, leaving them to fall into disrepair.

Relief can be hard to come by for homeowners who live in or near these distressed developments.

Several years ago, Kyle Addington, a financial advisor, bought a home in Litchfield Park, on the western outskirts of Phoenix, in a development comprised of five separate neighborhoods. While his neighborhood remained solvent, the gated community across the street – built by Phoenix homebuilder Zacher Homes – went broke before it was completed.

“It looked like a ghost town,” Addington says. “It was disgusting. Palm trees were lying over dead. There were weeds three feet high.”

Unpaid subcontractors began pulling into the neighborhood in the middle of the night, stripping granite countertops and brass plumbing fixtures out of the unfinished homes. Building materials lay exposed on unfinished lots crisscrossed with open ditches.

“It was a nightmare,” Addington says. “We had kids playing in this stuff.”

Addington, president of his local homeowners’ association, organized a community response to the situation about a year ago after Zacher Homes stopped returning phone calls.

He pressured city and state officials to take action, and ultimately succeeded in compelling several banks to finance the completion of homes that had been abandoned in mid-construction. The weeds are gone, and contractors are just in the process of finishing the last of the incomplete homes.

“It looks like a normal neighborhood now,” Addington says.

Yet looks can be deceiving. While the most glaring cosmetic problems have been fixed, Addington estimated that at least 38 of the development’s 58 homes remain unoccupied.

The epidemic of bankruptcies is also hurting subcontractors, many of whom remain unpaid after homebuilders go broke.

Subcontractors are required to file complaints with the Arizona Registrar of Contractors, which can in turn suspend the contractor’s license of deadbeat developers.

Those complaints are on the rise, says Bill Albright, assistant director of the Arizona Registrar of Contractors.

“We have definitely seen an increase in no-pay complaints,” Albright says.

As foreclosures spread, and more neighborhoods fall into bankruptcy, blight – a phenomenon more traditionally associated with distressed inner-city areas – is spreading. Most troubling, the cycle of blight has a tendency of becoming self-reinforcing.

“It has that negative pressure on values. It starts feeding on itself,” says Wercinski. “It’s a very serious issue.”

Wercinski says the real estate department has been proactive in attempting to stem the tide of foreclosures, and thanks to recent federal legislation, it will have millions of dollars to devote to helping troubled homeowners.

Without strong government intervention, the problem may be difficult to arrest.

Already, many HOAs find themselves increasingly saddled with debt because the growing load of foreclosures only adds to each homeowner’s individual burden. With less money available for landscaping and other maintenance, and with vacant homes settling into disrepair, the appearance of a neighborhood can quickly decline.

Addington, for one, says his homeowner’s association is about $40,000 in the hole. And with foreclosures occurring at “an unusual rate,” he says, a quick fix is hard to see.

Broken promises by nearby commercial developers may ultimately make the homes a tough sell. Addington says that when he moved into Litchfield Park almost four years ago, he was told a shopping center was in the works near his subdivision’s entrance.

“There was supposed to be a high-end shopping center, but it all fell apart. They have developed nothing,” he says. “We have a 30-acre parcel of blank dirt at the entrance to our neighborhood.”

The Arizona Department of Real Estate has customer assistance teams available for consumers at 602-771-7730 or cat@azre.gov.

Problems with builders can also be taken to the Arizona Registrar of Contractors at www.azroc.gov or 1-877-692-0762.

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>>Email the editor at aklaw@zoniereport.com.

Why our economy sucks: The best summary…ever

Global warming. Worldwide economic crisis. The idea that the L.A. Dodgers could win the pennant.

All of these sound like the end is near. Some of them are too confusing to contemplate. But Steven Pearlstein, a business columnist for The Washington Post, has shed a little light on the U.S. economy — it’s past, present and uncertain future.

We’ve all read scores of stories online about this stuff, but I felt compelled to bring this particular piece to your attention. Pearlstein’s column offers one of the most salient, user-friendly summaries of how we got here and where we have to go next in 208 words or less.

You can view the entire column here. But trust me, this is the best part:

“A better way to think about the economic forecast is that we are at the beginning of a transition period in which our collective spending as a nation will go from roughly 6 or 7 percent more than what we produce to closer to 2 or 3 percent less than we produce, to accommodate an aging population and the need to put away some savings.

That’s a huge swing, and although it won’t necessarily come all at once and may be accomplished through different means, there is no way to accomplish this task by producing more. We’re going to have to consume less, which means a temporary reduction in our standard of living.

Put another way, we didn’t just have a housing bubble and a corporate takeover bubble and a consumer credit bubble and a commodities bubble. In time, those asset bubbles led to the creation of a bubble economy, with too many airplanes and restaurant seats and hotel rooms, too many office buildings and shopping centers, too many investment banks and media outlets dependent on advertising revenue from car companies producing too many cars and home builders producing too many houses. Shrinking all that back to the right size is what the coming recession is all about.”

Now that’s the situation in a nutshell, isn’t it?