The future of the retail portion of Aspen Place at The Sawmill is in limbo after the developer
missed Friday's deadline to name investors to help with bond payments for all 40 acres.
(photo: Rick Wacha)
Developer pleads for time
by JOE FERGUSON
Arizona Daily Sun
March 2, 2010
The developer behind the financially troubled commercial/residential project at Butler Avenue and Lone Tree Road missed a crucial deadline on Friday to find new investors. The Phoenix-based Aspen Group was only able to find new backers for two of the three parcels in the 40-acre midtown project known as Aspen Place at The Sawmill. Without new investors for the third parcel, city taxpayers could again be on the hook for roughly $8.5 million in bond payments related to the property for the next 25 years. But the founder and CEO of the Aspen Group, Don Meyers, said he might be able to still find investors if the city can give him more time. Meyers would not elaborate, noting he is in negotiations with city officials.
Several councilmembers contacted over the weekend said they would be open to giving the developer more time to find investors. Giving the Aspen Group a few more weeks is preferable, said Councilmember Scott Overton, to having the city sell the property at a public auction. Overton said the Aspen Group has better contacts with private investors than the city. The Flagstaff City Council set the deadline out of continued concerns that the developer did not have the financing to pay back the $19 million in bonds the city helped to secure as part of a 2007 development agreement. The developer was expected to repay the bonds over 25 years, but the group missed the first bond payment of nearly $1 million last December. The city was able to cover the payment with a $1.9 million letter of credit it held from the developers. Another payment of $465,000 is due this summer, but it will also be covered by the remainder of the letter of credit.
City Manager Kevin Burke said last week’s deadline to find new investors was set to motivate the developer, but does not correspond to repayment schedule related to the bonds.
The announcement by Meyers late Friday afternoon that the Aspen Group was unable to secure financing to pay for millions in bond payments did surprise several senior city officials. Many were privately expecting the developer to default on the undeveloped southern half of the project that was zoned for 321 residential units — a mix of apartments, townhomes and detached single-family homes. However, Meyers indicated on Friday that he had found investors for the residential portion as well as the parcel that covers the New Frontiers supermarket. What Meyers was unable to find new backers for was the northwestern parcel that contains the revenue-generating parcels where Wildflower Bread Company and Pita Jungle are located. If the developer defaults on the northwestern parcel, it is not expected to have any effect on the leases at either business.
One possible solution would have the city auction off the northwestern parcel to make the bond payments, but in the slow commercial real estate market, the sale of property might not be enough. A recent estimate of the entire development suggests the entire project could be worth as little as $12 million in the current market. Meyers’ announcement on Friday puts into legal limbo a clause in the original development agreement that would split sales tax proceeds. If the city ends up taking over the northwest parcel, which was zoned exclusively for commercial and retail use, the only new sales tax covered by the agreement would come from the New Frontiers grocery store. The store primarily sells food, which is not taxed by the city. A clause related specifically to the grocery store splits additional incremental sales of taxable items above the revenue that was generated when the store used to be located on Milton Avenue.