The hefty cost of removing one of Mesa’s most notorious examples of urban blight includes eight years of tax write-offs for a company that once racked up property code violations and fines.
WM Grace Development Corp. of Scottsdale will receive eight years of excise tax abatements in return for demolishing Fiesta Village, a crumbling shopping center on the northwest corner of Southern Avenue and Alma School Road.
Built in 1979, it became one of Mesa’s most egregious examples of urban blight as its restaurants and stores began closing in the first few years of this century.
The Mesa City Council on Monday approved a Government Property Lease Excise Tax agreement — or GPLET — with Grace, setting aside years of acrimony and fines in return for the decaying shopping center’s removal.
Vacant for a decade, it will be replaced by the Landing at Fiesta Village — which will include at least 220 apartment units in 21 buildings as well as some restaurants and other service-oriented businesses.
A development agreement calls for demolition to begin by August 2020 with construction to begin by Oct. 2, 2020, completed by September 2022.
The terms of the arrangement require Grace to convey the 10 acres planned for the apartment complex to Mesa, which would lease it back to Grace for eight years.
The arrangement is commonly used to attract major industries, and was used with Google for the planned construction of a huge data center in southeast Mesa.
But Grace’s deal is even more lucrative.
The difference is that Fiesta Village is located within the Southwest Redevelopment Area, qualifying it for the tax abatement. Google’s deal qualifies for replacing property taxes with lower excise taxes, but not for the tax abatement.
“The existence of an RDA plus the designation of a central business district on these parcels allows the city to offer the maximum benefit of the GPLET — an eight-year full abatement of the excise tax, for which the project would qualify,’’ a city council report said.
Bill Jabjiniak, Mesa’s economic development director, said the tax deal has been under negotiation for a year and was requested by WM Grace to make the redevelopment project viable.
The GPLET is justified by the removal of blight in a key redevelopment area, he said. Fiesta Village is located across from Fiesta Mall, which opened in 1979 but has been all but closed for 1 ½ years.
After the eight-year lease agreement expires, Grace would own the property again and would be expected to pay property taxes, Jabjiniak said.
“You have to look at what the tax is generating today,’’ Jabjiniak said, noting taxes would be very minimal because of the property’s poor condition.
Mesa’s primary redevelopment target is Fiesta Mall. Only a popular Dillard’s Clearance Center remains open at the once thriving mall, but there are several thriving businesses on the periphery, including a Dutch Bros. Coffee shop and an In-N-Out Burger.
“Yes, we have had issues with them, but how do you get this moving forward?’’ said Mesa City Council member Francisco Heredia, who represents southwest Mesa. “We realized Grace wasn’t going to sell the property. We sent several (potential) buyers to them and they haven’t sold the property.’’
“Its been a difficult process to say the least,’’ Heredia said, “but it’s negotiations and conversations. It’s new times now. We need to bring it back to life.’’
Heredia said the key breakthrough for him came when WM Grace agreed to make a $303,000 payment to Mesa Public Schools, the Maricopa County Community College District and the East Valley Institute of Technology — to compensate for the tax revenue they lost from the GPLET.
“If you are not paying the school district taxes you would have owed, it’s a non-starter for me,’’ Heredia said.
A letter of endorsement for the project from Mesa Public Schools is included in city agenda documents.
Heredia said he met with Thomas Grace, the company’s vice president, in hopes of eliminating the blighted property, which has rankled Mesa residents and officials for years.
“I think the Grace family and city are moving forward. I think it’s good,’’ Heredia said.
Christine Zielonka, Mesa’s development services director, said the abandoned Fiesta Village became an eyesore between 2007 and 2009, with three broken signs, broken windows and overgrown and dead trees and landscaping.
Mesa and Grace had a frustrating, love-hate relationship for years. The company was issued citations and fines for city code violations, but eventually, the two sides struck an agreement in which Grace cleaned up the property to at least basic standards.
Zielonka and other city officials were unable to give an exact figure on how much Grace was fined and everyone said they are looking forward to substantial improvements after years of decay..
“There was a point where issuing citations didn’t make any sense,’’ Zielonka said. “We’d rather see the property cleaned up.’’
She acknowledged the property looked bad and generated complaints for an extended period of time. “It took us awhile to get to the point where we would collaborate,’’ she said.
While few people would consider the decaying shopping center attractive, it appears at least presentable.
The shopping center is surrounded by a chain link fence, plywood-covered windows and white-washed buildings. The abandoned shopping center sits behind a row of businesses facing Southern Avenue.
The era where people partied at Bobby McGee’s or celebrated St. Patrick’s Day at Bennigan’s seems like a lifetime ago.
Former city council member Dennis Kavanaugh said he has reservations about whether the GPLET would withstand a legal challenge because it is being used for an apartment complex — not a mixed-use development that would generate more jobs, as originally envisioned by the city.
He said the area between Dobson and Alma School roads, north of Southern Avenue, is saturated with apartments already and has been for 30 years.
“I think they have helped their case through the in-lieu payment to the school districts,’’ Kavanaugh said. “I think they have done a good job at what they are proposing.’’
Although a luxury apartment complex is a huge improvement over more than a decade of blight, Kavanaugh said he still wishes it would have been built at a different location.
“We created the opportunity for them to use the GPLET. I just didn’t think an apartment complex would qualify for a GPLET,’’ Kavanaugh said. “That’s not the preferred use.’’
Fiesta Mall was the impetus behind the district’s creation, Kavanaugh said, but he made sure Fiesta Village also was included in hopes of uplifting the entire area.
Heredia views the Fiesta Village redevelopment project as at least “a good sign,’’ but he and Kavanaugh agree that only a renovated Fiesta Mall will turn the area around.
Regardless, if the blighted property ever turns into an apartment complex, Kavanaugh said, “I think I will get a bottle of champagne.”