A dwindling housing market and limits on wastewater treatment are pressuring the Arizona Land Department to re-evaluate the appraisal of 1,276 acres of state trust land recently annexed by Fountain Hills.
Several homebuilders and potential bidders have said the property — scheduled for auction Sept. 28 for a minimum of $130 million — is overpriced, Land Commissioner Mark Winkleman said Monday.
“We’re looking into it and talking to some of our appraisers to determine whether the appraisal we got last spring still matches current market conditions,” he said. “There is a general concern that that price is high.”
The land department will decide whether to reappraise in the next few weeks, he said. A reappraisal would postpone the auction by months.
Tempe-based SunCor Development Co. is still interested in bidding on the land, said Jim Adair, director of community development. “We’re hoping that the reappraisal would be less, of course,” he said.
SunCor is planning between 1,400 and 1,500 homes on the land in the northeast part of Fountain Hills.
Fountain Hills-based MCO Properties, which had planned a smaller number of high-end custom homes on the land, has already announced it will not be bidding at the current price.
The future developer will be able to build up to 1,750 homes that adhere to current zoning restrictions because of an agreement negotiated by the town and land department in January.
But officials with the Fountain Hills Sanitary District — a governmental entity separate from the town — said they would be unable to service more than 1,071 homes on the land without expanding the plant, something they resolved not to do.
Those restrictions limit what a developer can do, and may make the land less valuable, Winkleman said.
“It always depends on what can you do with the property as to how much it’s worth,” he said.
“In this case you can’t build lots because of sanitary district limitations — that could impact the value of the property.”
Ron Huber of the Fountain Hills Sanitary District said interested bidders have also contacted him about sanitary limitations.
At least four developers have shown interest in the property, said Edward Dietrich, sales administrator for the state Land Department.
But since the appraisal was made in January, the Valley’s housing market has cooled.
There were 5,460 existing Valley homes sold in June.
That’s down more than 20 percent from May and off nearly 25 percent from this year’s market peak in March, according to the Arizona Real Estate Center at Arizona State University Polytechnic.
“A lot of real estate companies are re-examining land values at this time. There’s no doubt about that,” Dietrich said.
If the property is reappraised it would be the first time in years that the land department has had to reduce an appraised price of land.
“It’s not something we’ve been faced with in the last few years,” Winkleman said.
“We’ve had the opposite problem, and that is the market has been escalating so quickly that our appraisals have lagged behind.”
Once construction begins, the town will collect development fees.
But because it will take years to get to that part of the project, postponing the auction won’t have a significant effect on the town, said Town Manager Tim Pickering.
Now that the land has been annexed, the town will not be involved in the appraisal process or have a role in luring bidders.
“That’s the responsibility of the state Land Department,” he said.