Dirt Wars: The Battle Over the Future of Downtown Phoenix

Dirt Wars: The Battle Over the Future of Downtown Phoenix
Meredith Miotke

There are vacant lots scattered throughout downtown Phoenix, so the one on the corner of McKinley and North Second streets doesn’t stand out.

Odd bits of trash — a Push Pop wrapper, a blackened banana peel — have collected in the dusty gravel. A street sign warns, “No Parking: Police Department Will Impound.” People pass by on their way to Cobra Arcade Bar or the Angel’s Trumpet without looking up from their phones.

Back when the street grid was laid out in the 1890s, an ad in the Phoenix City Directory described this area as a “good neighborhood within a short and pleasant walk of the city,” with “the best and most eligible building sites in Phoenix.”

Black-and-white photos from the late 1940s show block after block of bungalows with deep porches and trim front yards. Lush palms shade the sidewalks, and thick hedges provide a sense of privacy. It’s the kind of neighborhood that Phoenix does exceptionally well — one with all the space and greenery of the suburbs, right in the heart of the city.

By 1962, Cora Ledbetter, a widow who had grown up in a farming community in Illinois, had moved into a modest house that sat on the now-vacant lot on the corner of McKinley and North Second Street. She stayed there for well over a decade, as people left downtown for the suburbs and the area’s downhill slide began. The dance studio around the corner closed, and a Christian mission catering to the poor opened up next door. In 1979, a few years after she died at the age of 92, her house was demolished for good.

Nearly 40 years passed. The weedy lot where Cora Ledbetter’s house had stood was largely forgotten as downtown Phoenix cratered out and then, gradually, began to improve. As people started to rediscover the appeal of living in an urban area, bars and bicycle shops opened up nearby, but the lot remained empty. Then, in 2016, a group of developers from Denver came before the City Council to propose using it as the site of a new $36 million, 19-story apartment building.

The Derby Roosevelt Row would be made up of 211 “micro-units” — studio apartments averaging 400 square feet each. Getting people to pay $1,300 a month for so little space would prove Phoenix had arrived as an urban destination, members of the City Council thought. After all, that same amount would get you an entire house out in Mesa.

But shortly after the project broke ground this winter, a lawsuit from the libertarian Goldwater Institute brought construction to a halt. Filed on behalf of the owners of the bar next door, the suit questions the legality of the $8 million tax break that the city of Phoenix gave to the developers.

Suddenly, the fence surrounding the job site came down, sidewalks that had been torn up were repaved, and the lot was covered back up with gravel. Today, it looks more or less the same as it has for the past 37 years.

It’s unclear if the Derby Roosevelt Row will ever end up getting built. At stake, too, are other projects that the city has lured with similar giveaways in hopes of seeing the vacant lots and long-abandoned buildings that dot the city center replaced by high-rise apartments and tech offices.

Phoenix today is at an odd stage of its development: You can’t walk too far before coming to a construction site with cranes in the air, but you’ll likely pass a deserted, empty lot or a seemingly abandoned building along the way. To hear city officials tell it, the lawsuit could be disastrous. After all, downtown Phoenix’s future hinges on being able to compete with other cities who are fighting for the same investments from the same developers.

But the impending court battle raises valid questions about how much money the city is giving away, and who’s really benefiting. You don’t have to be a Goldwater conservative to notice that corporate hotel chains enjoy drastically discounted property taxes while small independent businesses pay full price, or to wonder if the city’s vision for the future includes room for anyone who can’t afford to pay $1,300 a month for a tiny one-room apartment.

There’s a reason why not many people have been asking these questions. Point to any taxpayer-subsidized project downtown, and you’re likely to get the same response:

It’s better than a vacant lot.

The vacant lot on the corner of McKinley and North Second streets, next to the Angel’s Trumpet Ale House, has been empty since 1979.
The vacant lot on the corner of McKinley and North Second streets, next to the Angel’s Trumpet Ale House, has been empty since 1979.
Jim Louvau

By the time that I got to Angel’s Trumpet Ale House on a Thursday afternoon in April, every seat was filled.

I was there to talk the bar’s owners, Mat and Sharry Englehorn, whose lawsuit against the city of Phoenix had brought a stop to the construction of the Derby Roosevelt Row.

In theory, some of the building’s 200-plus inhabitants probably would have become regulars at the bar next door. Were the Englehorns worried about missing out on their business?

Mat laughed dismissively and gestured for me to look around at the busy patio.

“I don’t believe that,” he said flatly. “That’s a sales pitch from the developers.”

Englehorn grew up in the West Valley suburbs and looks uncannily like a goateed version of the guy on the Mr. Clean bottle. He was a real estate broker before opening the bar, although the general vibe he gives off is more biker gang. Between 1997 and 2012, the building that holds the Angel’s Trumpet was his office.

“The first few years, this was, like, a prostitute neighborhood,” he told me. “We never had any issues from it — never any break-ins or anything. Once in a while, there’d be a bum sleeping by the front door.”

His wife, Sharry, a slim Illinois transplant who stayed silent throughout our meeting, had run her own property management company. As Mat’s real estate office dwindled down to just three people, it became clear that the 4,000-square-foot building was more space than they needed. Meanwhile, Arizona State University’s campus had brought more people downtown, and the area was beginning to turn around.

“We did no demographics, we did no studies,” Englehorn said. “Sharry and I had always wanted to open up a craft beer bar. And it worked.”

As Angel’s Trumpet developed a reputation as a place to go for good beer, Engelhorn developed a reputation of his own for being willing to take on the Phoenix City Council. Last year, after the council voted to create a business improvement district in Roosevelt Row, he helped mount the opposition, which led to the state Legislature passing a law that prevented the city from establishing the district.

“It was just another tax downtown,” he explained. “Most of us down here are already paying a lot of taxes.”

Englehorn’s frustration over his steadily rising property taxes inspired him to sue the city when he learned that the developers of the Derby Roosevelt Row were going to get an $8 million tax break to build apartments on the empty lot next door. The jackhammering would be bad for business, he feared, and the 19-story building would tower over his outdoor patio. But, mostly, he didn’t think it was fair that the developers wouldn’t have to pay taxes for eight years.

“There’s a big group of us property owners who are tired of paying for other people, especially when it’s people who have a multimillion-dollar company,” he said.

Some boring but necessary background: For the past two decades, a large portion of the new buildings going up downtown have been subsidized with help from the Government Property Lease Excise Tax, or GPLET (pronounced jeep-let). It’s a statewide program that allows cities to give tax breaks to developers, in a roundabout way. The developer hands over the title for their land to the city, and then leases it back, so that they don’t have to pay property taxes. Instead, they pay a lease excise tax, which typically ends up being a fifth of what property taxes would have cost. If the area is officially designated “slum or blighted” — which all of downtown Phoenix is — they pay nothing at all for the first eight years.

The Goldwater Institute has long questioned the use of GPLETs, believing that urban development should be guided by market forces. They decided to take on Engelhorn’s suit pro bono in hopes of arguing that the Derby deal had violated several provisions in the Arizona Constitution.

Putting aside the legal question — which ultimately will be up to a judge to decide — the lawsuit raises other, more philosophical questions about what cities should do about their bombed-out downtowns.

“At the end of the day, this really is about philosophy of government,” Grady Gammage Jr., a real estate lawyer and sometime developer who also teaches at Arizona State University, pointed out. “Do you believe that government should build a hotel, or build and own a sports arena? Or do anything besides the core essential functions — police, courts, streets?”

Most people who don’t have an ideological ax to grind would probably say, yes, municipal governments should take an active role in trying to improve the quality of life in a city, and invest in building things like art museums and sports arenas and parks.

The question becomes trickier when you start talking about cities giving private developers — often multimillion-dollar corporations — massive subsidies to build hotels, office towers, and apartment buildings, which don’t offer a clear public benefit in the way that an art museum does.

Even more problematically, the complexity of these financing deals means they’re virtually impossible to execute without help from a team of lawyers, and, often, a lobbyist to get the agreement past the City Council. Small businesses that can’t afford those kinds of resources end up stuck paying some of the highest property taxes in the state, while bigger, richer companies get a significant discount.

That might be legal. But that doesn’t make it fair.

Looking northwest from the intersection of Washington Street and First Avenue in 1928. Prior to World War II, Phoenix had a thriving, bustling downtown.
Looking northwest from the intersection of Washington Street and First Avenue in 1928. Prior to World War II, Phoenix had a thriving, bustling downtown.
McCulloch Brothers Inc. Photographs, 1884-1947/ASU Library

A week after meeting with the Engelhorns, I headed downtown for the groundbreaking of a new Fry’s grocery store being built with the help of $18.3 million in tax breaks, on what has long been a vacant lot across the street from the arena where the Suns and Mercury play basketball.

A red carpet had been rolled out over the dirt, and men in button-down shirts and expensive shoes were milling around and sampling artisanal doughnuts. Thin, blond PR ladies darted through the crowd and made sure that everyone got a gift bag from Fry’s, which contained coconut water, low-sodium popcorn, and gluten-free animal crackers.

It was 76 degrees and sunny, the type of morning that makes you remember why you live in Phoenix. A light breeze kept knocking over the artist’s renditions of what the future Fry’s would look like. The drawings depicted a version of downtown where the number of pedestrians on the street matched what you’d see in Boston or Chicago. There were people eating at shaded outdoor tables, a man walking his bike down the sidewalk, a woman in skinny jeans and Converse sneakers stopping to chat with a friend. It looked nothing like the Phoenix of today.

When Mayor Greg Stanton arrived, trailed by an aide who immediately pointed him in the direction of the coffee urns, everyone took their seats.

“There’s something special that’s happening right here,” he told the crowd, rattling off statistics about the transformation of downtown: 1,800 new rental units, the lowest vacancy rate for office space in years.

“It really is a great day for the city of Phoenix,” we heard again and again as speaker after speaker took the stage. “It brings us one step closer to looking like the sixth-largest city in the country — which we are,” Councilman Michael Nowakowski pointed out. (Note: In May, the U.S. Census Bureau announced that Phoenix had passed Philadelphia to become the fifth-largest city in the country.)

In most places, the opening of a grocery store isn’t treated like the second coming. But in struggling urban areas, the ability to attract — and keep — a major grocery chain is seen as a key indicator that things are starting to turn around.

For years, people in Phoenix have been saying that the lack of a grocery store is the only thing that keeps them from moving downtown. That ended up becoming a self-fulfilling prophecy, since grocery stores don’t want to be in areas that lack a critical mass of residents. All but the most die-hard libertarian types argue this is exactly what the city should use tax incentives to encourage.

The new Fry’s is often touted as the area’s first grocery store, but that isn’t strictly true. The 1947 edition of the Phoenix City Directory lists six grocers and meat markets in the core downtown area, in addition to the many wholesalers and distributors located in the warehouse district down by the train tracks.

In fact, contrary to popular belief, which holds that Phoenix never had a real downtown, the area was a thriving city center up through the 1950s. Downtown was where you’d go if you needed to buy a couch or a pair of shoes — something that’s hard to imagine today — and shops and restaurants lined every block. People lived downtown, too, in elaborate Victorian-style homes and smaller bungalows.

Then, after World War II, Phoenix’s population started to boom. The city’s growth coincided with the precise moment in time where owning a single-family ranch in the suburbs became synonymous with the American Dream. Thanks to the abundance of cheap land, the city sprawled outward, and people began leaving downtown for the new subdivisions on its fringe.

Businesses followed, and, soon, all that was left behind were bail bondsmen, pawn shops, and dive bars. The few government workers, bankers, and lawyers who remained in the cratered central business district fled after 5 p.m. each day, returning to their homes in the suburbs.

In 1979, the city of Phoenix passed a resolution declaring the entirety of downtown to be a slum. That same year, Cora Ledbetter’s old house on the corner of McKinley and North Second was demolished. It wasn’t the only one. Entire blocks of bungalows, Victorians, and prewar apartment buildings were razed and turned into parking lots or simply left empty.

What finally got the area to turn around was a deal sketched out on a napkin by Arizona State University president Michael Crow and former mayor Phil Gordon to create a new satellite campus. In 2008, the first graduate programs moved from Tempe to downtown Phoenix. As others followed, ASU’s presence led to a building boom, and new coffee shops, bars and restaurants opened.

Nearly a decade later, critics argue that Phoenix has now reached the point where it no longer needs to use tax breaks to encourage private development downtown. They point to the fact that several new apartment buildings — iLuminate and Linear on Third Street, and Proxy 333 on Fourth Street — didn’t receive a GPLET from the city.

But none are more than six stories high, a distinction that is more important than it sounds. Simply put, if the city continues to build mid-rise apartment buildings, as it’s been doing for the past decade, downtown Phoenix won’t be able to grow into a truly interesting urban area.

“We deserve the option to stuff our faces at 1:30 a.m. with Korean barbecue in downtown Phoenix,” New Times food critic Patricia Escarcega recently wrote in these pages. “We deserve more late-night coffee shops and greasy spoons, too, where we can drink coffee and demolish carb-heavy plates with fellow night owls, sleep-deprived students, and business travelers.”

For downtown to become the kind of place that can support that sort of late-night scene, its population density needs to increase. And in order to get more density, you need to build high-rises. Which is what the city is now trying to do.

“The market rent can’t support high-rise construction today,” Christine Mackey, Phoenix’s city development director, told me.

Anything over six stories typically has to be built with concrete and steel, rather than wood, which is significantly more expensive. Add in the increased costs for things like elevators, and it ends up being twice as expensive, per square foot, to build a high-rise tower than your average six-story apartment complex.

But people don’t want to pay twice the rent to live in a taller building, which is why developers won’t build high-rises without some sort of incentive.

Meanwhile, the entire downtown area is still technically considered a slum. Though she’s faced plenty of criticism over it, Mackey believes that downtown still needs that designation.

“There are still a lot of buildings that are burned out, that are challenged, that are dilapidated, that need to be dealt with,” she said. “We’re getting there. Smart people have done incredible things to get us to where we are today. But there still is a lot of work to do.”

One Monday early in March of this year, Pete Petrisko, a Phoenix-based artist and activist, logged into Facebook and saw he’d been tagged in a post.

He clicked through. At first glance, nothing seemed out of the ordinary: Just another Craigslist ad, posted by a local real estate agent, listing luxury one-bedroom apartments for $1,520 a month. In addition to amenities like quartz countertops, stainless-steel appliances, and an infinity pool, the ad touted the building’s proximity to art galleries, cultural events, and live music.

Then he noticed the second image in the photo gallery, which announced, “Welcome to Roosevelt Row Luxury Living & Good Eats District.”

Petrisko recognized the image instantly. He’d designed it several months before, as part of a street art project intended to call attention to that downtown Phoenix’s so-called “arts district” was no longer a place that actual artists could afford to live and work.

Over the past four years, he had watched as developers bought up ramshackle bungalows and low-slung warehouses that housed art galleries, tore them down, and began building luxury apartments in their place. He’d led numerous protests and circulated countless petitions in an attempt to fight what he saw as the gentrification of Roosevelt Row.

In order to build iLuminate, the $1,520-a-month complex featured in the Craigslist ad, Colorado-based Baron Properties had demolished a boxy 1930s-era building. It had most recently been home to an art gallery and boutique run by an interracial lesbian couple, and, before that, what had been Phoenix’s only gay bar.

In the process, the construction crews destroyed a set of 65-year-old murals by the Tuscon-based painter Ted De Grazia, who’d been famous for his depictions of the Southwest. Petrisko had led a campaign to preserve both the murals and the building, which was unsuccessful despite widespread support from people in the neighborhood.

Now, his artwork was being used to advertise one of those very apartment buildings.

“How surreal is that?” he wrote on Facebook. By the next afternoon, the listing had vanished.

Back in the 1980s, artists started realizing that Phoenix’s hollowed-out downtown had an abundance of cheap real estate. Many wound up renting studios or opening galleries on Roosevelt Street, which had been all but abandoned when the neighborhood directly to the north was demolished in order to make room for the Papago Freeway. As they fixed up blighted buildings with boarded-up windows, the area, better known for open-air drug deals and prostitution, seemed to stabilize.

Within a decade, thousands of people were coming downtown on Friday nights for the monthly art walk. Inevitably, developers followed.

The mid-2000s brought the publication of Richard Florida’s The Rise of the Creative Class, which popularized the theory that any city that wanted to survive the 21st century would need to be able attract young, creative people — who weren’t too creative to have decent-paying jobs.

The creative class wanted to live in an urban environment, Florida wrote. They liked walkable downtowns, public transit, “authenticity” in the form of rehabbed industrial spaces serving coffee or cocktails, and anything that could be possibly described with the word “vibrant.” They wanted theaters, music venues, and art galleries, as well as a decent Thai restaurant.

But were there really enough graphic designers to go around? Could the so-called creative class really revitalize every decrepit downtown from Fall River to Fresno? No one seemed to want to ask too many questions.

Instead, cities throughout the country went to work trying to become more vibrant. Developers who promised to provide housing for the “creative workforce” had a captive audience and were virtually guaranteed a massive tax break. Of course, they couldn’t guarantee the artists’ lofts they built wouldn’t end up housing bankers and lawyers, who are just as likely to appreciate urban life as the next person, and much more likely to be able to afford the rent on a brand-new apartment. But by then, it would be too late.

Phoenix’s fledgling gallery scene, which still had yet to garner much critical acclaim, quickly became a selling point for real estate agents who realized that a certain type of tenant liked the idea of living in an arts district. Portland Place, one of the first high-end condominiums downtown, had its sales office double as an art gallery with its own curator.

Nearly a decade later, Alliance Residential took the idea to its logical conclusion by building an upscale apartment community on McDowell Road and christening the complex “the Broadstone Arts District.” With one-bedroom apartments starting at $1,419 a month, it seemed unlikely that many artists would be moving in.

Meanwhile, the area became less and less affordable. In late 2015, Phoenix-based ABI Multifamily reported that average rent in downtown Phoenix had jumped nearly 50 percent over the previous five years, to an average of $1,357 a month. These days, according to the market research firm Axiometrics, the average monthly rent downtown is just shy of $1,500.

Even Richard Florida has acknowledged his theory was flawed. Earlier this year, he went on NPR and admitted that the “creative class” has effectively pushed out blue-collar service workers, making cities massively unequal.

Petrisko points to 2014 as the year that marked the beginning of the end for the arts community in downtown Phoenix.

“That’s when two very significant things happened,” he told me. “First, the number of luxury-housing developments increased exponentially. Second, Artspace Projects, a nonprofit that builds artist-affordable housing, did a presentation to bring that housing option to downtown Phoenix, but the city of Phoenix never followed up with the organization after that initial presentation.

"We could’ve easily filled 100-150 units with creatives here," he added "Instead, Artspace chose to build in Mesa, because that city was proactively engaged to make it happen.”

Since Phoenix as a whole is still affordable compared to, say, New York or San Francisco, artists haven’t had to leave town entirely. Plenty of them simply crossed Seventh Street and settled down in the Garfield neighborhood, or migrated a few miles west to Grand Avenue.

Still, their departure points to a bigger problem. The city has given away millions of dollars trying to bring downtown Phoenix back from the dead, and a lot of new, shiny buildings have gone up as a result. As far as amenities designed to appeal to the “creative class” go, we’re catching up to other cities. There’s a farmers’ market, a handful of places to get craft cocktails, and a bike-share program. But it’s hard to point to a single thing that makes Phoenix stand out from every other city in the country — no one particular food, or genre of music, that it does better than anywhere else.

In other words, there’s nothing that makes it unique. And no amount of “artistic” luxury apartments is going to change that.

One evening after work in late April, I headed downtown for Jane’s Walk, an event that takes place in cities across the country every year in honor of the birthday of famed urbanist Jane Jacobs.

Some 20 people had already gathered by the Grid bike-share station at First and Washington streets by the time that I found a parking spot and fed the meter, feeling slightly guilty about the fact that I was driving to an event celebrating a woman who believed that cars were killing cities.

As we wandered down South Central Avenue and office towers gave way to deserted parking lots, it became clear that Jacobs would not be impressed by downtown Phoenix. The wide, hard-to-cross streets make it tough to navigate as a pedestrian, and the fact that much of downtown is visually uninteresting — dominated by large parking garages and bleak expanses of concrete — means that getting around on foot is an unappealing proposition.

Still, the existence of the Urban Phoenix Project, which organized the walk, is proof that people are starting to expect more. Founded in 2011, it lobbies for causes that range from getting more shade trees downtown to creating safer conditions for bicyclists. When the Derby Roosevelt Row’s developers came to the city in 2016, asking for a tax break, the Urban Phoenix Project argued that they should be required to provide affordable housing in exchange for receiving public money.

“In 10 years, if we’re not careful, downtown Phoenix could be a monotonous culture,” Sean Sweat, the group’s founder, testified when the deal came before the City Council. “And I don’t want it to be just for the rich. I would like downtown to be income-diverse, and this could be an opportunity to do that.”

He was successful: The developers, Amstar/McKinley, agreed to rent 5 percent of the units at the reduced price of $840 a month.

The fact that the city hasn’t been asking developers to provide some kind of direct benefit to the community — whether by in the form of affordable housing or parks and outdoor green space — is one of the main problems that Sweat has with GPLETs.

But he doesn’t think that GPLETs should go away entirely. That would leave Arizona as one of the only states in the country without some kind of tax incentive to encourage urban development, which would mean more unsustainable sprawl and less high-rise construction downtown.

“They [GPLETs] could be better,” he summed it up shortly after the Goldwater Institute’s lawsuit came out. “It’s just that right now, they’re the only thing we got.”

It’s the same argument that we hear again and again when it comes to downtown Phoenix: It’s better than nothing. Faceless office towers, uninspiring chain hotels, a bland convention center — all those things are better than craters of empty land. The Derby Roosevelt Row might have gotten a tax break, but at least it would have brought in more money than a vacant lot does.

Standing in that empty lot on the corner of North Second and McKinley, looking across a sea of parking spaces, you have a panoramic view what the city used to be, and what it’s becoming.

In the distance, you can see the antennas that top the Westward Ho — once the tallest building in all of Arizona, and a rare survivor from the pre-World War II era, when downtown Phoenix was at its best. Right around the corner, you have the $30-a-night Coronado Hotel, its sign advertising color TVs and refrigerated rooms, one of the last relics of the old, slummy downtown of the 1970s. Looking east, there are signs of the newer Phoenix: several bars, a vintage clothing store, and an indie movie theater. And, then, farther south, there are high-rise office towers full of marketing executives and software engineers, their windows sparkling in the sunlight.

In every direction, there are brand-new apartment buildings: cheaply constructed boxes built with synthetic stucco and concrete, with row after row of balconies that always seem to be empty. Their bold color schemes (cranberry red, mustard yellow) do little to distract from their grimness, and, somehow, their presence is even more depressing than a dusty vacant lot.

Downtown Phoenix suffers from a lack of imagination. With the exception of the Richard Meier-designed federal courthouse, there aren’t a whole lot of examples of visionary architects doing interesting work here. It’s even more depressing when you look back at old photos of streets lined with bungalows and palm trees, and realize that what’s taken their place is profoundly mediocre.

This isn’t an indictment of Phoenix as a whole. There are still plenty of palm-lined streets and bungalows — they’re just not downtown. Older subdivisions like Willo and Coronado and Encanto are incredibly popular, for good reason. Suburbia in the city, it turns out, is something we still do very well.

“Mass-produced suburban ranch homes are to Phoenix what Victorians are to San Francisco, brownstones to Philadelphia, or bungalows to Los Angeles — a signature of the lifestyle heritage upon which a city is built,” Grady Gammage Jr., the real estate lawyer and ASU professor, wrote in his 1999 book, Phoenix In Perspective.

In other words, we should embrace Phoenix for what it is, and not try to force it into being something that it’s not.

Maybe downtown Phoenix won’t ever feel like downtown Seattle or downtown San Francisco or even downtown Denver. And maybe that’s okay.

Email antonia.farzan@newtimes.com.


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