First, Del Webb finds a front company, Lakeview City, Inc., conveniently staffed by a former Del Webb executive.

Next, Lakeview convinces the Arizona State Legislature to allow the state Land Department to trade extremely valuable public land near New River for marginal land along the Colorado River that Lakeview happens to own.

Third, the swap is made. Lakeview obtains the New River land for a song.
Act Four, however, contains a twist. The land trade is challenged in court. This is where Lakeview's lender, Valley National Bank (subsequently Bank One), enters Giordano's scenario. Lakeview collapses, and the bank forecloses on the New River land.

To whom does the bank sell the New River land--at a huge loss?
You got it. Del Webb.
But the loss is only temporary; Bank One will recoup its money as the property develops and sells, through a side agreement with Del Webb.

The bottom line, according to Giordano:
Del Webb gets thousands of acres of prime state land at a ridiculously low price.

Bank One gets millions of dollars it is owed and a continuing profit stream from the New River project.

And the state gets a lot of useless land in sun-fried western Arizona.
Giordano's theory is not, on its face, entirely implausible. Del Webb and Bank One are big political players, not just in Arizona, but across the country. But the theory does have a major problem. It does not square with several well-documented facts, or the recollections of many who have been intimately involved with the New River acreage Del Webb ultimately acquired.

Here's how the New River deal really went down:
Conspiracy theory: Bank One will profit inordinately from the New River deal.

Reality: Public records and numerous interviews document that the bank's predecessor institution, Valley National Bank, took a loss of more than $50 million when Lakeview City, Inc., defaulted on loans backed by its property in New River. Bank One is not a development partner with Del Webb on the Villages at Desert Hills project; the bank's balance sheet, therefore, will not be directly affected by the success or failure of the development.

"What's going on now is between Del Webb and that community," a bank spokesman says. "The bank does not have a profit participation in this, as has been alleged."

Explanation: An utterly unpredictable series of financially catastrophic events ensued immediately after the state Land Department traded 5,600 acres of land near New River to Lakeview in 1986.

Bank One spokesman Steve Roman says the bank (then Valley National) made a crucial mistake in initially evaluating the New River property. The bank believed the land was worth far more than the $29 million appraised value used by the state Land Department when it traded the parcel to Lakeview.

Valley National lending officers, relying on generous mid-1980s appraisals, valued the property anywhere from $70 million to $130 million, says Roman.

"It was obviously a bad appraisal," says Roman.
The land swap had resulted in a lengthy, bitter and expensive court battle. Lakeview finally gained legal control of the property in 1988. But as soon as the courtroom dust cleared, the Arizona real estate market collapsed.

Two forces were eroding the value of the New River land: the general collapse of the Valley's real estate market, which was in full tailspin by 1988; and the lack of water needed to develop a planned community on the site. By that time, Lakeview, then headed by Jerry P. King, had piled up $60 million in debt using the New River land as collateral. The property, in effect, had become as much the obligation of Valley National as it was of Lakeview.

No bank likes to be in such a situation.
There was little the bank could do about the macroeconomic decline in real estate values other than write down the value of its real estate loans. The only hope of stemming the drop in value of the New River land--which the bank's appraisers had lowered to $30 million by December 1989--was to somehow find water for the land.

Lakeview City pulled out the stops to find water. It almost succeeded.
The company quietly negotiated a development agreement with the City of Peoria in September 1990. The agreement would extend the city's assured water supply to the New River acreage; Lakeview would pay development fees of more than $14 million to the city.

When Peoria entered the development agreement with Lakeview, Valley National also refinanced $69 million in Lakeview loans, on the theory that the New River property was now worth more. It had a guaranteed water supply.

But it was only "paper" water. No efforts were made to actually pump water to the New River land. The Peoria development agreement was never implemented. The value of the property continued to decline.

Valley National appraised the New River land at $30 million in December 1989; a $25 million valuation followed in April 1991; then came a $15 million value in December 1991; and by early 1992, at the depth of Phoenix's real estate crash, bank appraisers said the 5,600 acres south of New River was worth just $7 million.

By mid-1992, federal banking regulators were leaning on Valley National to get the loan off the bank's books. The Peoria water agreement didn't impress the Office of Comptroller of Currency, Roman says.

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