A 2006 voter-approved state law may end up forcing cities and other jurisdictions to pay landowners for damage to their properties’ value when zoning rules were changed to restrict data center development.
Proposition 207 allows owners to seek compensation when new zoning rules reduce land values. In recent years, several jurisdictions around the state have shifted their zoning regulations to more narrowly define where data center development is allowed.
AZBEX has covered these restrictions extensively. Our articles can be found here.
Now, several landowners and developers are beginning to pursue compensation for impacts under the various restrictions, including demands from nearly a dozen parties attached to data center developments proposed in Phoenix. Phoenix City Council voted to restrict data center development last year. (AZBEX; July 9, 2025)
The owners argue the new ordinance creates new and more difficult conditions that had not previously been in place, diminishing the value of their land. In all or nearly all the complaints and communications, the owners assert data centers had previously been a permitted use.
The complaint statuses are mixed. One owner has filed a lawsuit. Phoenix has waived the restrictions for two owners and is working to waive them for a third.
Prior to enacting the new ordinance, Phoenix had no data center-specific regulations in place. Projects that had a site plan approval in place were exempted from the zoning update.
Despite increasing resident opposition centered around water and power usage, noise and other perceived potential environmental and quality of life impacts, developers and industry analysts have noted Arizona’s data center boom has contributed more than $11B to the Arizona gross domestic product.
Phoenix has received Prop 207 notifications from 11 landowners seeking compensation for diminished property values or exemptions from the restrictions. The complainants say they had planned to sell or use their properties for data center developments that will now require a costly and difficult rezoning process, if they can proceed at all.
In total, the various owners’ claims add up to nearly $753M, which will come from the City’s general fund if payments end up being required. The owners who have presented claims are:
- Dairy 51.8, LLC: $155.4M,
- Property Reserve Arizona, LLC: $130.8M,
- Bill Sheely and the Sheely Family: $112.8M,
- Scannell Properties #598, LLC: $75.5M,
- Aligned Data Centers: $75M,
- West Buckeye Rd LP: $54M,
- SI PHX02A, LLC: $53.6M,
- VP LB & 202, LLC: $44.6M,
- Jeff Gordon and Envision Elliot, LLC: $23.3M,
- CMB III, LLC: $17.2M and
- LKY Real Estate Fund IV Limited Partnership: $10M
To date, the City has provided waivers for the Sheely and LKY claims. Council was scheduled to consider a waiver for Aligned this week.
West Buckeye Rd LP has filed a complaint in Maricopa County Superior Court. It alleges the fair market value of its 70-acre property at Buckeye Road and 99th Avenue had fallen by more than $54M. It also estimates it would have to spend at least $9M to meet the updated standards under the ordinance.
The City reportedly told the company it was willing to negotiate in October. The company says it provided additional details in November so Phoenix could better evaluate the claim. The complaint says the City has yet to either provide any compensation or enact a waiver.
The company wants a court order to offset its lost property value and to pay its attorneys’ fees. (Source)