Scottsdale accused of lowballing land’s value

Lawyers for Toll Brothers developers accused Scottsdale in court Wednesday of lowballing the value of property condemned for the McDowell Sonoran Preserve, since the city paid nearly seven times as much per acre for land next door at WestWorld of Scottsdale soon afterward.

The city’s lawyers countered that Toll Brothers is trying to wrangle a $40 million windfall profit at the expense of taxpayers.

Attorneys for both sides made their remarks during opening arguments in the eminent domain trial of a lawsuit the city filed against the developer in Maricopa County Superior Court,

“The only issue we’re talking about is the fair market value of this land,” said Toll Brothers lawyer Dale Zeitlin.

The city condemned the 383-acre parcel of vacant desert east of Thompson Peak Parkway between Bell Road and Union Hills Drive in January 2004.

The city’s appraisal estimates the land’s value at close to $34 million. Toll Brothers’ appraisal comes in at about $107 million, Zeitlin said Wed. He said the condemned land is the eastern half of a larger, nearly 800-acre parcel the company bought at an Arizona state Land Department auction in 2002 for about $87,000 an acre.

And that’s the price Scottsdale wants to pay per acre of the condemned land, which it intends to transform into the Gateway Access Area, the main trailhead and parking area for the planned 36,000-acre McDowell Sonoran Preserve. The site is to house the future multimillion-dollar Desert Discovery Center.

But Zeitlin said the fair market value of the land should be determined by looking at the sale of other properties nearby around the same time. Just one year after Scottsdale condemned the gateway property, the city bought an 80-acre parcel that straddles 94th Street on the north side of Bell Road, just south of the disputed land, for $600,000 an acre, he said.

“Real estate is about the neighborhood,” Zeitlin said. “The city paid $14 million more a year later for a property that’s one-fifth the size. This is right down the street from the subject property.”

Had the city not condemned the land, Toll Brothers could have built 380 homes on the property and charged significantly more than $87,000 per acre, Zeitlin said.

Toll Brothers believes that the land is worth $280,000 an acre.

Assistant City Attorney Bruce Washburn said the developer stands to make a nearly $40 million profit off selling half the land it bought from the state for a total of $68 million to the city for $107 million. He said Toll Brothers knew the eastern half of the land would never be developed with residential homes, and so the developer can’t base the land’s value on the sale price of nearby developed parcels.

After Mayor Mary Manross was unsuccessful in convincing the Land Department to put only the 393 acres for the preserve up for auction in 2002, rather than the entire 800 acres, city officials approached all the likely buyers, including Toll Brothers, to let them know the city intended to acquire the preserve acreage, Washburn said.

“Toll Brothers knew very well that they were never going to build any houses on it because they city was going to buy it,” he said.

The city couldn’t bid on the land at auction because it could use funds set aside for the preserve only for the eastern half of the property within the preserve boundary, he said. The remaining funds for the western half would have had to come from the General Fund, and the city couldn’t afford it at the time.

But after buying the property, Toll Brothers reneged on the agreement and demanded a much higher price, forcing the eminent domain action, Washburn said.

He said the city’s purchase of land nearby at WestWorld was a special case, and should not be used to set the price of the gateway parcel. Scottsdale had to buy the Bell Road parcel to provide parking for major events at WestWorld like the Barrett-Jackson Collector Car Auction, the Arabian Horse Show and the FBR Open golf tournament, he said.

“WestWorld is a big deal for the Scottsdale economy. They had to have it for parking,” Washburn said.

Nevertheless, the WestWorld parcel has sat vacant since the city bought it in 2005 for nearly $48 million, despite calls from those same major events that it be opened up for parking. There are no definite plans for its use, although proposals range from selling it off to turning it into a park.

The setting of the value of the gateway parcel is expected to go to the jury in the next two weeks, setting the price the city would have to pay the developers for condemning the land.

The gateway area could be completed as early as September 2009, but the interpretive nature center is likely three to five years away, officials have said.