By Ray Stern
By Ray Stern
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By Stephen Lemons
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By Chris Parker
"Let me be completely honest with you," Unger says, deftly piloting his gun ship up the conch-shell circles of the Nordstrom parking garage on East Camelback.
"I do not think like a typical developer. I have one goal in this plan: to create a uniquely Scottsdale experience that is a point of pride for all residents.
"The citizens of this community will not stand for gross commercialism, and I am not about to try and force it upon them."
Unger, owner of Spring Creek Development, smoothes the Suburban to a stop on the southern edge of the garage's top level.
"See the clock tower? That's where the five-star hotel will go."
He points toward the heart of Scottsdale's old, labyrinthine Fifth Avenue Shopping Area, a former artists' colony on the west side of Scottsdale Road, just south of the Arizona Canal.
The canal is the artery through which the blood of Unger's would-be masterpiece flows. The water, once properly diverted and accentuated, will bring the people. The people will bring the money. And the money -- the money will create the legacy.
Unger steps into a hot wind and surveys the realm with the confidence of an aristocrat who has the queen for a champion.
"People from around the world will want to come here," he says. "They'll plan trips around the splendor we create."
Otherwise known as The Canals of Scottsdale, that splendor would permanently transform the character of "The West's Most Western Town." Intertwining waterways would meander throughout a 27-acre "cultural district" on both sides of Scottsdale Road.
Tourist-laden gondolas would ply the canals; there would be fine dining, public parks, the ritzy hotel, a city square, luxury condominiums, a multiplex cinema, high-end shopping (lots of high-end shopping), an 8,000-space parking garage (by comparison, the new garage across from Bank One Ballpark holds 2,700 cars), and the eighth-largest museum in North America, housed in the opulent husk of the Scottsdale Galleria shopping mall.
The price would be at least $654 million, and 30 percent of the total cost -- however high it runs -- would be paid with state and local tax money.
Scottsdale Mayor Sam Campana, a major supporter of the proposal, says it would "bring a little bit of Venice to the Southwest."
Scottsdale voters will decide the project's fate Tuesday, September 7, in a special election.
"Look," says Unger. "We're not doing Hooters World, here. We're going the extra distance. But we, as the private sector, realized we can't afford to create a cultural experience with international allure unless we get a hand of support from the public."
Unger and Excel Legacy Corporation -- the San Diego-based real-estate investment firm that's backing him -- have already purchased 80 percent of the real estate within the proposed redevelopment area.
In what some call an outrage, the City of Scottsdale has promised to condemn, knock down and hand over the rest.
"The city is using local money to put local businesses out of business and clear the way for a private developer," says Barbara Espinosa, Scottsdale realtor and chairwoman of Save Old Scottsdale. "It's a frightening collusion."
If voters green-light the Canals on September 7, a three-year period of demolition and construction will begin next year.
If they do not, the project is dead.
"If that happens," Unger says, "the people of Scottsdale will have shot down a once-in-a-lifetime opportunity."
He's right. The state tax law Unger and Scottsdale officials contorted into a financing structure for the Canals project has never been used before, and never will be again.
This so-called "theme park tax" law was passed in 1993 to entice a developer to build a Six Flags-style amusement park in Gilbert.
The law entitles the private developer of a "theme park" to tap a public revenue stream to pay for one-third of the project. Specifically, the developer gets to keep all the state and local sales-tax revenue generated inside the park, until 33 percent of the costs are repaid.
Six Flags over Gilbert never happened, and the law written to grease its wheels lay dormant on the books until it was discovered by the minds behind the Canals of Scottsdale.
"It was just a matter of thinking outside the box," says Unger.
The law defines a theme park as "having rides, features and attractions designed and built around a particular time, place, story or subject."
Gondolas on the canals may not be Space Mountain or the Matterhorn, but they are rides, just as a museum could be called an attraction and fine dining a feature.
But what exactly is the central theme around which the rides, features and attractions in the Canals development would be built?
The City of Scottsdale squirmed around that question in a theme-park financing application submitted to the state's Department of Commerce in February.
"The dominant theme of the area will be cultural and educational," the application read. "This theme will tell a strong cultural and educational 'story,' and will weave together the various attractions in a cohesive way."
The state's legislative oversight committee gold-stamped the application. (Scottsdale conspiracy theorists point out the chairman of that committee was Scott Bungaard, a drinking buddy of political consultant Jason Rose, who ran Campana's last campaign and now works for Unger. Incidentally, Rose also drives a black SUV).
Last May, the Legislature repealed the loophole-riven theme-park tax law -- three months after the Canals plan snuck under the wire.
Unger's consultants predict the Canals of Scottsdale would draw 6.4 million visitors in its first year of operation.
That's 1.4 million more people than visited the Grand Canyon last year.
Unger expects those numbers to increase every year, maxing out at around 20 million visitors in 2013. By comparison, the gargantuan Mall of America in Bloomington, Minnesota, attracts 35 million people a year.
Espinosa has two words for Unger's projections: "Horse pucky." And a few more words: "People don't come to Arizona to ride on canals and visit museums."
If she's right, and if local, repeat visitors don't make up the difference, the tax exposure could get severe.
According to the current budget for the Canals, taxpayers will owe its developers $195 million -- one-third of the total tab -- upon the project's completion. That's when Unger et al. would begin pocketing sales tax.
Unger's stair-step revenue projections -- which are based on his rosy attendance projections -- say it would take about 10 years for the public to pay off the developers.
He is careful to emphasize that he and his partners will start banking the $195 million when and only when the project is completed.
"We front all the money [$654 million]. Then, once the project is built and paid for, we get a portion back. If the project never happens, we get nothing. There's no risk to citizens."
No clear risk, anyway.
The concept behind the Arizona theme-park law is long-term investment -- the taxpayers give a developer money now, in order to get back more in the form of sales taxes later.
For example, retailers operating within the boundaries of the proposed Canals of Scottsdale district currently generate about $3 million per year in sales tax.
Consultants hired by Unger and Excel say the Canals project would rake in 10 times that, thereby fattening local and state tax coffers -- once the $195 million debt is cleared.
That's unless the Canals of Scottsdale pulls a Galleria and flops.
In that case, taxpayers would find themselves paying off the construction of a failure, with little hope of ever getting their money back.
Also, one critical facet of Arizona's theme-park tax law is that while it sets a minimum total cost of development -- $100 million -- there is no maximum.
Once the ride's in motion, keep your hands in the car, because there's no getting off.
Taxpayers will be forced to cover one-third of the costs for the Canals of Scottsdale, no matter how high those costs climb, and they have already begun their ascent. Two weeks ago, a team of independent consultants hired by Unger and his partners reported the conversion of the Galleria to a museum would require $32 million more than the developers had allotted in their budget.
As mountaineers say: "That's a lot of air under your butt."
Along with the magazines piled in the waiting room outside the mayor's office in Scottsdale City Hall, there's a book made by third graders.
One picture is of a clown hat.
"Mayor Campana wears a clown hat to attract tourists," the passage says.
But Campana is no fool.
She didn't stop a public vote on the Canals project, even though many advised her that public approval was unnecessary.
The Scottsdale City Charter requires any "new tax" must be approved by a general vote. Campana does not view the financing for the Canals as a new tax, and hopes others don't. But she agrees "there is a cogent argument to the contrary." Reasonable minds differ, so why not call a vote?
A vote of confidence would congeal the hot blood of controversy, and a vote of confidence is what Campana expects from the outcome of the September 7 election.
If not, she says, the project is finished.
"If they can't convince us it's in the best interests of Scottsdale, it won't happen, because in that case it shouldn't happen."
Make no mistake -- Campana is the Canals of Scottsdale's most prominent champion (she calls it "a museum-themed district"). But that doesn't mean razing a venerable section of her city's downtown rests easy on her mind.
"It grieves me to do this," she says. "But it's a surgical decision. It's not a catastrophe.
"Keeping downtown Scottsdale strong has been a top priority in this city since Herb Drinkwater was mayor and I was on the city council. [The Canals] is the best way to do that.
"We're the only city in the Valley with a canal running near our downtown. It's serendipity, and we're going to capitalize on it."
Campana describes the Canals as "a transition piece" for the city.
"Along with the unique [feature] of the canal in our downtown, Scottsdale also [has] the unique feature of the Fashion Square mall, which is really a suburban mall in the downtown of a city.
"Right now, the canal is a barrier between this hugely successful mall and the rest of downtown Scottsdale. The idea is to let culture and commerce flow freely across the water."
Besides, Campana says, let's be realistic: "We'd lose the Fifth Avenue Area, yes, but the Fifth Avenue Area is clearly in decline. They've led a subsidized existence there for quite some time."
The buildings in the Fifth Avenue Area are old. Some might be called dilapidated. And they were not built to make use of the canal's scenery. All the structures along the canal on Stetson Drive have their backs to the water.
Many storefronts in the area are as empty as the ones in the Scottsdale Galleria, even though leases in the Fifth Avenue Area are much cheaper than in downtown Scottsdale's nearby, better-known retail center, Old Town Scottsdale.
But the leases are also potentially much shorter. After all, the district has a sword poised over its head.
There are probably several reasons why the Fifth Avenue Area, despite a few, scattered success stories, is failing: One is Scottsdale Fashion Square, directly across the canal. Another is a lot of the money in Scottsdale has moved north. Also, longtime shopkeepers and property owners in the area blame the construction of the Galleria, which disrupted access to an already obscure district.
And they blame the City of Scottsdale.
"We were tricked," says Judy Peters, who owns buildings on Sixth Avenue, which houses an herb store, a make your own pottery business and Santa's Back Door, a seasonal holiday shop.
In 1996, the City of Scottsdale approached Peters and other Fifth Avenue District property and business owners with a deal: The city asked the owners to support the creation of an enhanced-services district -- a special taxation area -- which assesses each owner a small amount and puts the money into a collective pool of about $750,000, which would be used to improve and market the district.
There was one catch: To create the special tax district, the city would have to declare the area a slum, which would give the city greater powers of condemnation.
"If we'd known what they had planned, no one would have given them more power," Peters says. "We never were told anything about their true intentions. All we heard about was how they were going to improve the banks of the canal. Well, they have a big idea of a canal bank."
City of Scottsdale Director of Redevelopment Gary Roe has said repeatedly that the owners were "explicitly informed of the possible consequences." Also, he has said, the city planned to declare the area a slum whether the owners agreed to it or not.
John Mollard, a retired Southern California real-estate agent who owns an antique shop on Sixth Avenue, has a poster hanging in his window. It's a fictitious newspaper's front page -- the September 7, 2000, issue of the "Scottsdale Gazette."
"Scottsdale Bankrupt" screams the headline.
The story begins, "Due to the generous incentives given the developers of the Canals of Scottsdale, the City of Scottsdale has declared bankruptcy," then goes on to describe empty gondola rides, the stench of dead fish, and Mayor Campana fleeing town, Baby Doc-style.
A sign on the same pane of glass blares "Rob From the Poor and Give to the Rich -- The City of Scottsdale Way!"
Mollard is a long way from poor. Poor is living in a shack on a hillside in Mexico. Mollard lives in a lavish apartment above his shop, surrounded by God knows how many antiques, paintings and Japanese artifacts.
Mollard says a real-estate broker representing the Canals of Scottsdale approached him recently with a paper to sign: It was an option to buy his property.
"It wasn't an offer to buy my property, it was an offer to tie it up in escrow for 10 years so I couldn't sell it to anyone else," says Mollard. "Then, if they wanted to buy it, they could. When I saw what they were offering, I shoved this thing at the guy and said, 'Get the fuck off my property.'"
Thanks to the city's powers of condemnation, one day soon, Canals developers may be telling Mollard the same thing -- in so many words.
According to the agreement between Canals developers and the city, if there are any stubborn property owners in the redevelopment zone -- Mollard says it will take a crane to remove him from his home -- the City of Scottsdale will use its powers of condemnation to take possession of the property, then deed it to the developers.
Federal law requires the city pay condemned property owners "fair market value" for their land and buildings.
Campana says ousted owners "will be well taken care of."
"We're a nice, thriving, well-to-do community, and we will do this the right way," she says.
From the sidewalk the Scottsdale Galleria looks like a cocaine lord's South Beach compound on Miami Vice -- two high-profile, pink buildings connected by a sky bridge.
Inside it looks like the set for Lair of the Valley Girl Zombies.
The marble columns are as massive as the silence.
Sheets of black plastic hang in hundreds of abandoned storefronts on the four levels circling the grand atrium, creating the effect of a sinister hive.
Hands with elegant fingers and gold bracelets, painted on the walls, point the way to Scottsdale Road.
Developers built and billed the Galleria as a Ralph Lauren vision of the Southwest: Rodeo Drive shopping, Biosphere style.
Now, the Scottsdale Police Department uses the 415,000-square-foot complex as a training ground, running SWAT team simulations in the empty corridors.
The Galleria cost $120 million to build -- in 1987 dollars.
Excel Legacy Corporation purchased the building for $6 million in 1992. The Canals of Scottsdale deal calls for the city to buy the Galleria-turned-museum from Excel for $25 million.
For a decade, the Galleria has loomed over downtown Scottsdale as a monument to the dangers of excess. Ironically, the image-conscious city's worst eyesore would be one of the few structures in the Canals of Scottsdale zone left standing. Plans call for the pink monstrosity to be transformed into "The Museum of Progress."
Promotional literature from Unger's campaign group -- Great For Scottsdale, Great For You! -- describes the Museum of Progress as "a world-class cultural institution dedicated to chronicling the progress of mankind and the changes that have occurred in technology, nature, human nature, and the world's civilizations."
In addition to the Museum of Progress, the converted Galleria buildings will hold a sort of United Nations of mini-museums: the Arizona African Art Museum; the Asian-American Museum; the National Latino/Latina Museum, and the JFK Health World Children's Museum, featuring a crawl-through model of the human heart and "a virtual village where children learn first-hand about bike safety."
The planned centerpiece of the cultural complex, though, is a giant, interactive globe, 72 feet across, suspended from the ceiling of the Galleria's four-story, glass-topped atrium.
"Visitors will be able to walk on a cat walk through the giant globe and look down to see footage of such phenomena as a volcano erupting under the sea, or whales migrating," reads a Great For Scottsdale, Great For You! pamphlet.
"A sky scene that visitors can gaze at will be above the walkway. Rockets and airplanes are planned to 'fly' around the globe."
The hallways and former stores circling the atrium would contain the Museum of Progress' collection of "displays, exhibits, and artifacts from prestigious, rare and one-of-a-kind collections from across the United States."
The Galleria has already proved its usefulness as a mammoth display case.
In the fall of 1997, the City of Scottsdale hosted Icons, a traveling exhibit of cultural artifacts from the National Archives, including Abraham Lincoln's stove pipe hat, Dizzy Gillespie's trumpet and the ruby slippers that Judy Garland clicked in The Wizard of Oz.
Curated by the Smithsonian Institution, Icons was a huge success: 160,000 visitors, 60,000 of whom were Valley schoolchildren on field trips, came to the temporarily spiffed-up Galleria during the show's six-week run.
Mayor Campana heralded those numbers as "proof of the Galleria's tremendous potential as a cultural facility."
After the Icons show, Campana and other Canals of Scottsdale supporters began to drop the Smithsonian's name at every opportunity, boasting the project would "bring the Smithsonian to Scottsdale."
When the City of Scottsdale submitted its application for theme-park funding to the state Department of Commerce, it claimed the Canals theme park would include "a Smithsonian museum."
That misrepresented the truth.
Smithsonian officials had tentatively agreed to loan a future Scottsdale museum items from its collection -- not to open a branch of the Smithsonian in Scottsdale.
There were no plans to do so then, and there are none now.
Word of the name-dropping reached Washington, D.C. In March, the Smithsonian's director of affiliations asked Campana and other city officials to please stop using the Smithsonian's name as a political lock pick.
Despite the reprimand, Great For Scottsdale, Great For You! materials continued to wrap the Smithsonian and the Canals of Scottsdale into the same package.
This prompted an open letter from the Smithsonian dated July 12, which accused unnamed parties of implying the Smithsonian endorsed the Canals of Scottsdale, stated this was not the case, and announced the Smithsonian was taking its unique, prestigious, one-of-a-kind toys and going home.
Although the source of the world-class collection that would jam the Museum of Progress remains a mystery, Canals supporters continue to hammer on the idea of turning the Galleria into a museum.
A transformed Galleria would comprise less than 20 percent of the total Canals of Scottsdale project, but it's the central image of the Great For Scottsdale, Great For You! campaign.
Every newspaper ad and glossy mailer portrays the Canals project as the shining knight of progress, come at last to slay the Pink Dragon, a menace to the image of an image-conscious city.
"A lot of people think this vote is only about finally doing something with the Galleria," says Espinosa. "They don't understand the full scope of what will happen to downtown."
But what to do with the Galleria, if not the Museum of Progress? Some have suggested a hotel and conference center, others a new city hall. One popular idea is to make it a casino.
Espinosa says the city should just buy it and blow it up.
"Then make a nice park," she says.
Article nine, section seven of the Arizona Constitution dictates neither the state nor any subdivision of the state "shall ever give or loan its credit in the aid of, or make any donation or grant, by subsidy or otherwise, to any individual or corporation. . . ." (Emphasis added.)
Last November 3, Excel Legacy Corporation CEO Gary Sabin penned a letter to Excel's shareholders, in which he outlined their investment strategy:
"Our philosophy is to pursue projects that have the potential to generate above-average profits because of their unique locations, concepts, and entry barriers," Sabin wrote.
"We prefer projects with substantial government subsidies, and incentives to lower development risk."
Excel's investment portfolio consists mostly of Wal-Marts and AMC movie theaters. The company also owns the Desert Fashion Plaza shopping center in Palm Springs, California, and recently purchased a ski-in retail and condominium development at the base of the mountain in Telluride, Colorado.
Recently, Excel has concentrated its investment efforts on Scottsdale. In addition to buying up most of the property in the Canals zone, Excel bought the mortgage on the Los Arcos mall.
Furthermore, as this article went to press, Excel was negotiating with another California-based company, Starwood, to take over the financing of the Scottsdale Waterfront -- a retail and condominium development now underway on the vacant, north bank of the Arizona Canal. The Waterfront is unrelated to the Canals of Scottsdale Project.
Campana says she hopes the deal goes through.
"The city would like to see a unified redevelopment vision," she says. "We'd like to see a project where people park once, then explore a retail, culture and recreation area on both sides of the canals."
Whether it complements the Waterfront project or not, The Canals of Scottsdale would easily be the crown jewel in Excel's collection. The firm has no experience with so huge an undertaking.
Neither has Unger -- although he has a stellar record as a developer, with his highly vaunted renovations of the Hermosa Inn and the Royal Palms hotel.
"The extra care taken in those projects, the Royal Palms and the Hermosa Inn, that's an indication of how this project will be handled," says Unger. "It's bigger, but it's going to be just as good. Or better."
Excel Corporation would put up three-quarters of the money for the Canals of Scottsdale, and Unger the rest -- signing his name for at least $160 million.
He reminds Scottsdale voters that even if they vote down the Canals project, he and Excel still own most of the property in the redevelopment zone.
"I assure you of this: Something new is going to go there. The city needs to decide if it wants to make it something special.
"Without the public's participation, we'll have to lop a limb off," he says. "We'd lose the museums, probably, and a lot of the public space. You won't find a developer who will put in 48 percent open space in a urban setting without this funding mechanism, that's for sure."
Unger says he thinks those who oppose the Canals either subscribe to "an anti-everything city hall philosophy" or suffer from nostalgia disease.
"A lot of them are people who yearn for the days when Scottsdale was a sleepy little town," he says. "They want to keep it the way it was. Well, you can't do that."
Scottsdale architect Sam West, an outspoken critic of the Canals plan, says he fears an invasion of name-brand retail outlets that would make shopping in Scottsdale a generic experience.
"You look at a charming town like Telluride, Colorado, and you see a main street shopping area dominated by unique local stores. Why would people come to Scottsdale to shop at the same mega-retail stores they have at home?"
According to election records, Great For Scottsdale, Great For You! has spent nearly $800,000 trying to convince Scottsdale voters that the Canals of Scottsdale is the right plan for the future of their city's downtown.
Great For Scottsdale, Great For You! has promoted the Canals project with a line of bottled "Canal Water," and a television spot which depicts children pleading with voters to give them a new museum.
In early August, Save Old Scottsdale -- which has spent less than a 10th as much as Canals proponents -- put up 200 red and white campaign signs. Great For Scottsdale, Great For You! responded with twice as many, nearly identical signs promoting "the only plan to revitalize the Galleria Area."
Spokespeople from both groups have rhetorically sparred in several well-attended public debates, including an August 12 match in which Espinosa blindsided Great For Scottsdale, Great For You! chairman Bill Heckman with a set of real-estate transaction records that she said proved Unger had recently purchased another building on Fifth Avenue, then immediately deeded it back to the city (in Espinosa's mind this was some indication of dark machinations behind the scenes).
Heckman sputtered about personally knowing Fred Unger and being sure there was a reasonable explanation, as Jason Rose and a cadre of young men wearing stonewashed jeans and "Canals of Scottsdale" golf shirts all reached for their mobile phones.
Two minutes later, one of them trotted a note down to Heckman.
"I've just received a response from Mr. Unger," Heckman said. "He says he did buy the property, but he has not deeded it to the city, and has no intention of doing so, and that you should be ashamed of yourself. So shame!"
But Espinosa apparently has little shame when it comes to preserving her idea of Scottsdale.
"The Western experience of this city would be ruined forever, and I'm [going to] do everything I can to stop it," she says. "You may see me spread-eagled on a bulldozer before this thing's done."
Contact David Holthouse at his online address: email@example.com