By Roland Murphy for AZBEX
Had they taken place at the same time, Scottsdale Mayor David Ortega’s introductory comments and the responses of the Multifamily development panel at last week’s Bisnow Scottsdale State of the Market event would have added up to a spirited debate.
As it was, with Ortega giving the event’s keynote speech and the panel closing out the morning session, it almost felt as if the participants were discussing activities on two different planets.
Ortega’s Keynote
Mayor Ortega began his remarks by saying, “Scottsdale is the intersection of talent and investment.” He noted most of the city’s challenges, historically, have been external, including those derived from the activity of investors in other parts of the country.
“What we’re dealing with today,” he said, “is a clash. We have a clash, and that clash is happening around us. It’s called ‘climate change,’ but I call it ‘business climate readjustment.’”
He noted cultural climate impacts in the rest of the country – including weather, quality of life and business conditions – are driving people to Arizona. He added that with Scottsdale in particular, those new arrivals are looking at all the city’s best attributes in deciding to relocate.
He described the challenges associated with making trends and desires “fit into the Scottsdale envelope, where we have high expectations, we’re very systems-driven, and we got something done called the General Plan.”
After giving a history of the Scottsdale General Plan over the past 22 years, Ortega then addressed General Plan 2035.
Talking about bringing the plan to the voters, he discussed the significant opposition the proposal received from the development community and from opponents in the community who favor higher density development. “There were people betting against Ortega,” he said. “So, when it came for a vote, some people threw 75-grand against it and said, ‘If Mayor Ortega likes it, we hate it.’ That’s what happened.”
“Well, we got it done,” he added. “It was voted on by the people. How useful is that?”
It should be noted here that the Scottsdale General Plan 2035 was approved by voters in the Nov. 2021 all mail-in election by a margin of 2,546 votes (52.34% to 47.66%) with an eligible voter participation rate of approximately 25%.
He said the plan update was composed of multiple elements including cultural, environmental, residential and others. Then he said, “It helps us form our guiding principles that we’re working on. It’s very valuable as a community. And who’s against parks, or police and fire and all these other things?”
Ortega then yelled, “Well, somebody was because they tried to kill it!” Returning to a normal voice, he said, “We don’t want chaos. We want more certainty as we go forward.”
Ortega then turned his attention to non-local developers trying to get into the Scottsdale market. He said at least twice a week he gets calls from companies in other states who are trying to bring hotels, apartments and other dense development types to Scottsdale because of the city’s demographics and appeal.
He said he is usually skeptical about such pitches and compared it to his experience as an architect screening potential clients. He said it’s difficult to develop apartment and hotel projects in Scottsdale, and, “My advice to them generally is, ‘Just buy the entitlement that’s already there for a hotel because there are four or five of them in Scottsdale that have been approved but haven’t been built yet.’”
Ortega added, “Part of what we’re dealing with here is some sophisticated money… panic driven… saying ‘Scottsdale’s the place to be,’ or ‘I’m getting the heck out of New Jersey or somewhere else. It’s already papered out. It’s depreciated out and I want to come to Scottsdale.’”
Pivoting to his own stance on development, which has been noted as among the most anti-density in the state, he said, “Everything has a breaking point, and what I preach is balance. This is why I push back. I want to have mixed-use, not token mixed-use, not 100% apartments squeezing out commercial because people need to do something, rather than stay in their 800SF one-bedroom or whatever.
“All of these things add value to your properties, so we can and should work together.”
He then praised investors coming from out of state and focusing on purchasing vacant office properties in Scottsdale for relocation and renovation as the kind of investment the city needs.
Returning to the General Plan 2025 he pointed out there are 24 separate elements, only one of which is development. “For me, as mayor, it’s only one twenty-fourth of my day, one twenty-fourth of my concern.”
In closing, Ortega said, “I just want to emphasize, from a commercial aspect, I ask for mixed-use – seriously. It’s not going to be 99% apartments and a little slushy mart. I’ve seen some of those deals come through, and they’re bad. You’re going to have bored people because they’re waiting on that one café in that lot. It doesn’t pay off that way, and it’s not the Scottsdale that it could be.”
The Multifamily Market Panel
Mayor Ortega left partway through the first of the day’s two panels, which was focused primarily on the hospitality market – the key takeaway from which was that, just as providers have to refine and reinvigorate their brands to keep them current and appealing, so, too, must Scottsdale continue to refine and update its hospitality offerings in the face of growing competition from other municipalities.
Once the second panel was seated and introduced, it was off to the races in lambasting Mayor Ortega, his allies on City Council, and the growing influence and distortion organized development opposition groups have brought into the approval and entitlement process.
The panel consisted of:
- Jason Morris, Withey Morris Founding Partner, Moderator;
- Zach Haptonstall, CEO of Rise48 Equity;
- Jennifer Schrader, President of Caliber Companies;
- Tammy Caputi, Scottsdale City Council Member;
- Nick Rahman, Senior Development Manager of ZOM Living, and
- Larry Kush, Senior VP of ORION Investment Management and former Scottsdale Planning Commission member.
After brief introductions and overviews, the panel quickly turned to address the various points both made and unaddressed in Ortega’s keynote.
Caputi, who in addition to her role on the Scottsdale City Council is the founder of Yale Electric West – a lighting and electrical equipment supplier for commercial construction projects, said she initially ran for Council because she “felt very strongly about being a positive, forward-thinking, pro-business and pro-education voice for the city.” She added that as she moves into the third year of her current four-year term, “I will officially be the only pro-business, forward-thinking, pro-development Councilmember on this particular Council, which is going to be an incredible challenge.”
She added, “Mayor Ortega mentioned ‘balance’ in his presentation. I’m going to push back on that and say that we actually do not have balance today in Scottsdale. I think that the City of Scottsdale has approved fewer projects in the last two years that I’ve been on Council than the City of Mesa approves in one day in their Council meetings. I would absolutely argue that we need balance, we’ve got to have quality development, but we are starting to push away the good projects and make it much too hard, complicated and expensive to move forward in Scottsdale.”
Morris asked the panelists how Scottsdale ranks as an area to work in terms of desirability for development or purchase opportunities compared to other Valley cities.
Kush responded land sales are easy to close for Scottsdale properties but, “You wouldn’t be able to build what you want to build, so you have to rezone.” He then described the difficulties two developers have with projects in the area of 92nd Street and Shea Blvd. (Mercado Courtyards and 94 Hundred Shea – The Village), which despite significant support from area businesses and potential residents have been hung up for years and undergone multiple revisions in trying to gain Council approval.
“The opposition has been unbelievable,” he said. “Nothing new in the way of multifamily has been built in that area in 30 years. No one backs up to it, so you’re not dealing with homeowners who are complaining, but it’s probably one of the most controversial zoning cases I’ve ever seen. The anti-apartment groups are coming out of the woodwork to fight it, and they’re fighting it because they don’t want Scottsdale to change. They think there are too many apartments. They think they’re too high and too dense; four stories are too high for them.”
Prompted by Morris, Kush went on to explain that the site he was discussing includes an empty office building on part of the site that has been vacant for at least 10 years. The other piece consists of parking structures for the nearby CVS campus.
Kush told the audience the developers trying to gain approval for these two projects have spent approximately $500K each in pursuing their claims. “It’s kind of the going number,” he said. “If you’re going to zone in Scottsdale, it’s going to cost you about half a million dollars. It’s going to be extremely expensive. It’s going to be extremely time consuming. You’re going to need a land seller who is exceptionally patient.”
Kush said, “The NIMBYism has really taken over. We have a City Council that actually runs for office on an anti-apartment platform. It’s really having a huge impact. No one wants to listen to reason, and City Council is, I think, scared of these groups because they’re so well organized.”
Discussing the opposition groups and their tactics, he appeared to shock many in the room when he said he knows people who procure letters of support for various projects who wait until the last possible moment to turn them in because opposition group members will seek out the letter writers and harass or threaten them for expressing their support.
Caliber Companies’ Schrader, the developer of Mercado Courtyards, said the lack of workforce and attainable housing in central Scottsdale has become a passion project for her, in part because no new units have been delivered there for decades.
She noted traffic is a common complaint opposition groups raise in trying to stop projects. “The reality is,” Schrader said, “people are driving in the city no matter what because they’re working in Scottsdale (and living elsewhere). If we can build attainable housing, that shortens that commute and actually helps with our traffic challenge.”
Schrader identified herself as one of those developers who relocated to Scottsdale from Detroit 15 years ago because of the business-friendly climate. “Over the years, it’s become more of a challenge, and it’s a head-scratcher because we see the needs that are within the city.” She compared Caliber’s projects in Mesa and working with the city for actual balance and benefit versus the entrenched resistance projects receive in Scottsdale.
“What we experience here is a small subset that doesn’t want to see change, and we have blighted buildings, we have buildings that are sitting vacant, that aren’t bringing tax dollars in, that are potentially creating challenges for the neighborhood, and for some reason, we just can’t get past that.”
Morris agreed that the atmosphere in Scottsdale has changed and asked the panelists if it can get better or if the NIMBYs are now in charge.
Caputi said current sentiment at Council has swung solidly to the opposition side. “We are starting to make the bar way too high,” she said. She said the opposition groups are wrong about over-development, pointing out that one-third of the city’s area has been set aside so it can never be developed in the first place.
“We’re talking about doing the most we can with what’s left. We get projects that make perfect sense. They check all the boxes.” She pointed out she frequently sees projects that meet General Plan requirements, are appropriately situated for dense development – such as next to a freeway – contribute to addressing affordable housing supplies, etc. “And then, what happens is we start putting up all sorts of unnecessary extras in there,” mentioning arbitrary restrictions on height, density, water and other considerations beyond the actual planning guidelines and looking for any reason to deny a project.
“The bar continually moves,” she said. “What happens is, we have a very sophisticated group in Scottsdale on the opposition side.” She then detailed some of the tactics and distortions opponents make, including about water usage, the development pipeline and other concerns that serve to keep the fear factor elevated. “This idea that we’re being overrun by apartments is just absolutely ridiculous.”
Swinging back to Mayor Ortega’s comments later in the discussion, Morris asked how important mixed-use actually is for Scottsdale’s future.
Caputi said it discourages development because Scottsdale has such a high volume of existing retail that is currently struggling to survive. Kush said the market has demonstrated first floor retail does not work and cited several examples of thriving apartment developments with vacant retail space on the first floor.
Rachman of ZOM Living said his company has found retail doesn’t help a project secure financing. In fact, it makes it harder.
Back in February, when Morris was arguing for a project that would turn a dying strip mall into a residential development with boutique retail, in order to meet the mixed-use requirement, Morris used data from CBRE in his presentation to Council to show that Scottsdale is remarkably over-served with retail. The data at the time showed Scottsdale has a retail space per capita estimate of 90.1SF. The next closest Valley city was Tempe at 69.6SF. The national average is 56SF. (AZBEX, Feb. 11)
“Scottdale has more retail than any other city in the Valley,” Caputi said. “We don’t need more retail. We need more housing. Retail follows rooftops.”
She added, “This idea that government is going to determine the market – and we have a mayor who’s very fixated on this – …I don’t know where this comes from. I don’t think it’s our job to dictate what’s going to be successful there. We end up with blighted buildings. Almost every project we’re seeing now is a retail center that is laying vacant, that’s begging for housing, yet what holds these projects up is we’re insisting that they reinsert retail into them, retail that has already failed.
“In order to get that approval, that residential that we desperately need, we’re going to require that you put in retail that will probably fail, or some ridiculous workaround like making your gym open to the public or putting in a live-work space, which, again, isn’t really needed, but we’re forcing that in, driving up the cost of the construction. It just doesn’t make economic sense, and it’s not our place,” Caputi said.