Two developments on Arizona State University property have drawn the ire of some legislators after the university initially failed to report the projects to them.
The projects – the 266-unit Mirabella senior living facility and an Omni hotel and convention center – are planned to be built on ASU property at the corner of Mill Avenue and University Drive in Tempe.
ASU presented the projects to the Joint Committee on Capital Review at a meeting on Dec. 17, 2017, though some legislators questioned why the presentation had not occurred sooner.
Under a law passed in 2006, certain privately funded projects on university land must be brought before the committee for review, according to a report prepared for the JCCR.
ASU previously had argued that Mirabella did not qualify for review under this statute because a 2007 law revised the rules to stipulate that projects not serving a university population are not subject to review.
However, A.R.S. § 15-1682.02 states, in part, that for projects serving a non-university population, the university must still prepare a report on the projects for JCCR at least two months before the anticipated execution of an agreement.
“Reporting requirement under the statute does essentially say, as legislative council has said, that this does require a report,” Joint Legislative Budget Committee senior fiscal analyst Matt Beienburg said at the meeting. “This is not something that ASU proactively reached out to us about at the time.”
Both projects were initially approved by the Arizona Board of Regents in 2016, and the Mirabella project broke ground in February.
Pacific Retirement Services, the company behind Mirabella, has already secured $1,000 deposits on 230 of the property’s 266 units. About 170 of those individuals also have made 10 percent down payments, Olson said at the meeting.
“I would caution (other members of the committee) that just because they’ve already started doesn’t mean that we can’t ask questions or possibly provide an unfavorable review,” Rep. Mark Cardenas, D-Phoenix, said at the meeting.
Ultimately, the committee did not provide any negative recommendations for the project, though it did stipulate that this review did not amount to a review of a parking garage that ASU plans to build adjacent to the other developments. The university will be required to submit to a separate review for that project, which the university plans to fund through $30 million in system revenue bonds.
During the meeting, legislators also raised questions about whether ASU should be permitted to build the projects at all, and several were concerned about the effect that the property tax exemption would have on local schools.
Because they are built on university property, neither project will be subject to property tax. Omni will pay ASU $1.1 million annually in lieu of property taxes. Mirabella will make a similar payment that could be valued at up to $600,000 annually when the facility is fully occupied.
“I’ve got serious reservations about our universities getting into the commercial real estate business, particularly when it comes at the expense of taxpayers who are forced to make up the revenue for K-12 education that these businesses would be paying if they weren’t operating on public land,” Rep. Vince Leach, R-SaddleBrooke, said via email.
At the meeting, Leach suggested that legislators who support these types of projects should put a bill before the Legislature expressly allowing universities to pursue them.
However, Sen. Steve Farley, D-Tucson, defended ASU’s ability to participate in these types of commercial developments, noting that the very statute that gives the JCCR its power to review these projects also gives universities the power to pursue them.
Farley also noted that commercial development is one of the tools the universities have to generate revenue to offset state funding cuts.
“All of us have a certain amount of discomfort with this type of a system, but until we further fund the university system, we cannot deny them every tool at their disposable to try to survive,” Farley said.
He added, “I would prefer to fund (universities) through traditional means, but until we provide them with that funding ,we can’t deny them oxygen and then deny them an oxygen mask.
The Mirabella facility will consist of a 20-story north tower and a 13-story south tower and feature a lecture hall and 10,000-square-foot multipurpose room. The project is expected to cost $270 million and is a joint venture between Pacific Retirement Services and University Realty LLC, a subsidiary of the non-profit ASU Enterprise Partners.
In December, the Tempe City Council approved a measure to allow the Industrial Development Authority of the City of Tempe to issue revenue bonds in an amount not to exceed $260 million and loan the proceeds to Mirabella to finance the development.
The city is not obligated to make bond payments, according to Tempe City Council documents.
An agreement between ASU and Mirabella calls for the parties to agree to a 99-year ground lease with Mirabella, paying an upfront rent payment of $7 million to ASU.
The Omni hotel and conference center will be adjacent to Mirabella and feature 330 rooms and a 30,000-square-foot conference center. Omni Hotels will fund the construction of the $110 million hotel portion of the development. ASU will pay $19.5 million for the construction of the conference center.
The agreement between ASU and Omni calls for a 60-year ground lease as part of the deal, and Omni will pay the university an upfront ground lease payment of $5.9 million.
Omni also is responsible for all operating and capital maintenance costs and will be entitled to all revenue generated from the development. The agreement also gives ASU the right to use the conference center.
– Reach Wayne Schutsky at 480-898-6533 or firstname.lastname@example.org.