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Slummin' in Scottsdale

At age 61, John Mollard likes things consistent. Close. Convenient. And he's done his best to set up his life so that it stays that way.

The same restaurants and the same meals, for example. Most days it's raw fish here or raw fish there, the sushi not only a favorite of his but a concession to his heart, which will require surgery in a few years.

The familiar places also keep his stress level down, which is important.
But today he's agitated. He's come to Ra, a restaurant a mile or so from his downtown Scottsdale home, and Mollard's favorite sushi chef is nowhere to be seen. It drives him to distraction.

"Tai not here today?" he asks his waitress about five different times in a soft, hesitant voice, as if he asks one more time Tai will magically appear.

He dreads having to explain his order. Mollard wants off-the-menu dishes, the trademark of a regular customer. He manages to convince a chef to make what he wants, but he can't help muttering about his disappointment that Tai had taken a day off. And did he mention he has a heart condition?

Mollard doesn't look like a cardiac patient. He seems to be in good shape for his age, and his look is casual but urban. He wouldn't seem out of place if he lived in the Village and dealt art or wrote books.

Instead, the former Los Angeles real estate broker deals antiques and lives on a street of small shops in downtown Scottsdale.

Like his diet, Mollard designed his living arrangements to be the model of constancy and convenience. Two years ago, he added a second floor to his antique store on Sixth Avenue, a lavish space filled with his own antiques and Japanese artifacts, and then moved in. Most things he needs, including raw fish, good friends and shopping, are within walking distance. Mollard even put in an elevator.

After a lifetime of work, Mollard was set. He planned never to leave his beloved downtown home.

The City of Scottsdale, meanwhile, told Mollard that it was thrilled with his little project, and helped him carry it out.

And then, only months after it was completed, the city decided to demolish it.

At the same time city council members were encouraging Mollard to make Sixth Avenue his permanent home, Scottsdale city staffers were plotting to raze the street in one of several urban redevelopment projects that seem to have become the city's obsession.

Mollard had made the mistake of owning property that lies between the Arizona Canal and the white elephant known as the Scottsdale Galleria--two things the city wants transformed into a sort of retail and cultural theme park. Everything close by will be transformed as well, and Mollard's home will become a waterway, an underground parking lot, or even a sushi restaurant.

He has no choice in the matter.
But he doesn't seem to realize that. Perhaps trying simply to express how much his home means to him, Mollard vows that he won't budge. "They'll need a crane to get me out of there," he says, sounding more pitiable than resolute.

But it's hard to blame Mollard for not knowing the score. A check with some of his neighbors shows that they're similarly unsure where they stand, and a request to the city shows that Mollard has yet to receive a single communication from the municipality about its plans to lay waste to his neighborhood.

And that's not the only fishy detail in the city's eagerness to turn its downtown into a sort of cowboy Venice. Local property owners and activists say Scottsdale's treatment of Mollard is part of a pattern of questionable uses of eminent domain, cozy negotiations with developers and alarming examples of corporate welfare.

The city rejects those criticisms, claiming to be acting in the best interests of the majority of Scottsdale's citizens, even if it hasn't acted in the best interests of John Mollard.

Mollard, meanwhile, grasps for answers, unsure what he should do next. More than once, he says condemning his building would be like condemning him.

If that's true, then he's a dead man walking. And one who doesn't seem to realize that he's already lost his last appeal.

John Mollard must live in the nation's nicest slum.
He's standing on his second-floor balcony looking over the tree-lined neighborhood around his building. Quaint shops and restaurants line both sides of Sixth Avenue near his antique store. There's a small hotel. A pottery place. An herb store. Professional offices.

The slum even has a French bistro.
Across Scottsdale Road to the east looms the Galleria, an empty marble monument to overzealous 1980s development. To the north, the Arizona Canal cuts a diagonal toward the intersection of Scottsdale and Camelback roads. A short distance to the west, Camelback passes under a still-unfolding retail bridge, built on a plot of air given up for free by the city of Scottsdale to Nordstrom and the Scottsdale Fashion Square.

 

To the south and east of Mollard's store, Old Scottsdale and its kitschy boutiques, nightclubs and restaurants spread out.

The neighborhood shows no trace of rat-infested tenements. No bombed-out buildings. No cardboard shacks. No open sewers. Not even a drive-through liquor store.

Sixth Avenue is a slum that few working people would find unappealing.
But it's a slum nonetheless, or at least according to the City of Scottsdale.

And how the city managed to declare the neighborhood a slum without objections from property owners--thereby making it easier to condemn buildings like Mollard's--was a forward-looking act of modern urban redevelopment that was long overdue, say city staffers. Or it was a classic bait and switch.

So claims local property manager Tom Giller, who explains how the city convinced building owners to both increase their own taxes and put their ownership in jeopardy.

First, a little history.
Incorporated in 1951, Scottsdale has in recent decades seen dramatic growth northward, becoming an elongated city gobbling up more and more pristine desert. Its downtown, meanwhile, has tried to cash in as much as the rest of the city on its reputation as a resort town and tourist destination, mainly by marketing itself as a charming, artsy and less pricey center than newer, upscale developments farther north.

But that didn't mean some didn't wanted to upgrade downtown. The 600,000-square-foot, oddly shaped Galleria was supposed to do just that when it opened in 1991. Within two years it had failed, and in 1993 the $100 million pachyderm was sold for $6 million to Excel Realty of San Diego.

Hoping to survive the Galleria's failure, downtown businesses banded together to market Old Scottsdale in a process that was fraught with problems, says Giller. Merchants chipped in to a collective pool that was used to pay for advertising and improvements, but payments were uneven, and shop owners complained that the process was unfair.

"The city says that the property owners came to them and asked to make it fair. . . . So an 'enhanced services district' was proposed to raise money and operate more like a mall," Giller says.

The city asked shopowners to support the creation of a special taxation area--the enhanced services district--which would tax each owner according to an equitable formula. The money, a projected $750,000 (a substantial improvement over the $100,000 the shop owners had been raising through volunteer efforts), would make money available for things like increased security, parking solutions and marketing.

Shop owners were asked not only to voluntarily submit to the new tax (a majority of them could nix it if they opposed), but also, as a legal requirement for the special district, to go along with the city declaring downtown a "redevelopment area."

Giller says he realized that this was a risk. He knew that by creating a redevelopment area, Scottsdale would, by state law, be declaring its downtown a slum. And that would mean that Scottsdale could more easily condemn any building within the area's boundaries. Giller says the city assured him that wasn't the reason it was helping the shop owners get their special taxation district.

"Boy is that an absolute untruth," complains Scottsdale redevelopment administrator Gary Roe. "My recollection is that we were explicit about the condemnation consequences," he says, emphasizing that the city made it clear it wanted to declare downtown a slum whether or not the special taxation occurred.

But Giller wasn't the only one led to believe the city only sought the slum designation to put in the special tax. "Scottsdale was forced to designate most of its generally tony downtown as a 'slum and blighted' area so that businesses in the area could tax themselves to develop a more aggressive and collective marketing campaign for themselves," editorialized the Scottsdale Progress-Tribune. "The designation also gives the city expanded condemnation authority. . . . But businesses and property owners should have the ability to improve themselves without calling themselves names."

With the support of property owners, in the summer of 1996, the city's redevelopment board collected data about downtown buildings, looking for signs of deterioration to cite when it declared the area a slum.

Meanwhile, John Mollard, with encouragement from city Councilwoman Mary Manross, was building his dream home. He went along with the plan to increase his taxes for the good of the neighborhood. He says that as a resident and not just a shop owner, he wanted the added security and other amenities the taxation district promised. He says he had no idea the city would use his support to make it easier to take his land.

 

But apparently, as it negotiated other redevelopment deals, that's just what the city was tempted to do. At the same time Scottsdale was preparing to increase its condemnation powers south of the Arizona Canal, a project on the canal's banks had city staffers dreaming big dreams. The Waterfront, a decadelong wish, was finally becoming a reality.

The city had long wanted to do something with the canal, one of the ubiquitous aqueducts that crisscross the Valley. Newspapers carried many reports about the complex deal the city approved in August 1996 that brings not only Nordstrom and its sky bridge to the area but also calls for a pedestrian bridge across the canal and development along its banks.

Giller says that before he urged his clients to support the downtown taxation plan, he got assurances from the city that it wouldn't use the downtown slum designation to expand the Waterfront project south, away from the banks of the canal.

But, only months later, that's just what happened.
"It became apparent that the city wasn't all that worried about the enhanced services district and raising the tax revenue. They were using that as an excuse to be able to declare more area as slum and blight to wheel and deal with their developer friends. Because once they got the designation, they immediately expanded the boundaries of the Waterfront," Giller says.

John Mollard moved into his upper floor November 1, 1996. A month later, the city declared downtown Scottsdale a slum. And seven months after that, just as Giller feared, the city asked developers to submit plans for revitalizing the failed Galleria, which would include expanding the Waterfront project south of the Arizona Canal.

Mollard's building was in the way of the new project. But in supporting the new tax on himself, he'd also supported the city's ability to tear down his just-completed home.

He had, in the parlance of more urban downtowns, been worked.

If Mollard--still blissfully unaware of it--had been victimized, a neighbor directly across the street found himself in a much better situation.

Fred Unger doesn't mind an unannounced visit. He puts what he's doing aside and welcomes a visitor to his office, which sits across Sixth Avenue from Mollard's antique shop.

Unger is 48, tall, and seems confident, a boyish-looking Tom Skerritt-type, naturally politic and comfortable in his own skin. And maybe he should be, after the accolades he's received for the work he does.

His renovations of two local landmarks--the Royal Palms Inn, which he's sold, and the Hermosa Inn, which he hasn't--have won him the kind of well-deserved praise that developers crave.

"I like unique architecture. I like historic areas. I'm the antithesis of chain restaurants and chain hotels," he says. And, as an owner of several properties on and around Sixth Avenue, Unger says he has reason to be concerned about the fate of downtown Scottsdale.

"A city's downtown, its core, is very important, and there are good reasons why it shouldn't be allowed to deteriorate. I've been here in Scottsdale 12 years, which doesn't make me an expert. But I think downtown Scottsdale is declining. Something's going wrong down here. What is it? Maybe it's that Scottsdale Fashion Square pulls people away, maybe it's the hole in Scottsdale Road, maybe it's too many stores of the same kind. I know I tend not to bring out-of-towners downtown," he says.

When the city announced its proposal to redevelop the Galleria and much of the land around it, Unger and the Galleria's owner, Excel Realty, decided to join together to bid for the project as Scottsdale Waterfront South Associates.

There was good reason for them to do so. Together, Unger and Excel own a majority of the property the city wanted redeveloped (Unger says 70 percent of the land is under their control). Scottsdale had made it clear that priority would be given to bids presented by majority owners.

Winning the bid could mean hundreds of millions, not only in profits generated by the project in rents and sales, but also in incentives from the city itself--more than $80 million in subsidies had already been promised for building up the north side of the canal, and why would a developer expect any less for the other bank?

It would be to a bidder's advantage to know what the city preferred for the Galleria and its environs. And that's why, in other forms of government procurement, strict rules prevent bidders from meeting and discussing projects with city or state staff. In redevelopment, however, such rules seem quaint. When New Times found that City Manager Richard Bowers had twice met with Unger during the bidding period, Mayor Sam Campana shrugged it off as business as usual. "We need to understand all of what it is they're offering and what their vision is, and ask questions directly," she said.

 

Unger compares his meeting with Bowers and asking for specifics about the city's goals to a college student discussing a term paper assignment with a professor. Better to know what the teacher's looking for before handing in a long project, he says.

More controversial was Unger's choice of architects, Ken Allen, who happened to be a member of the city's redevelopment board--the very body that was deciding which bid to accept. Allen told New Times that he was avoiding conflicts of interest by removing himself from board activities related to the bids ("On the Waterfront," October 2, 1997). Again, city officials characterized what seemed a serious ethical question as something that happens in Scottsdale all the time and was, therefore, not worth troubling over.

In October, to no one's surprise, the city's redevelopment board unanimously accepted the bid of Scottsdale Waterfront South Associates.

To be fair, Unger's record of success in redevelopment and his team's concepts for the project--turning the Galleria into a regional Smithsonian Institute to anchor a cultural and retail district--may have been the strongest proposal before the board. The bid beat out a plan by High Hat LLC, a group that included Taliesin West architects, which had pitched turning the Galleria into a conference and exhibition center for a hotel. Another bidder had dropped out earlier.

Unger and his partners are currently working out a detailed plan for the city's approval. In about a month, he says, he'll submit his designs.

The city council can reject what he brings them, but considering what the two sides have already invested in the project in time and money, it's hard to believe the plans won't be accepted.

And once Unger gets the green light, his first order of business will be procuring the parcels of land he and Excel don't already control. What owners won't sell, the city will condemn.

It's a prospect Unger says he finds distasteful. "It's a difficult process. I would hope that no one would be unhappy, but I know that that won't happen. This is my town; I don't like being adversarial."

But without every parcel in the project's proposed area, Unger says, he won't be able to pull off his waterway village at all.

Historically, that's something all developers have risked when they've attempted to put together land for a project--a process known as "assemblage." Given the nature of property ownership and the free market, developers have always faced the unhappy prospect of building around a stubborn property owner who refuses to sell out.

Increasingly, however, developers are finding city halls more willing to lend out their powers of eminent domain to prevent that from happening.

Eminent domain--perhaps a municipality's most harsh power, the ability to force an owner to give up his or her land by condemning it--has traditionally been used in two ways, says Phoenix condemnation attorney Jay Dushoff.

Cities condemn land so that freeways and other public projects can be put in. And cities have also condemned land to clear slums or blighted areas, the kind that are an actual threat to public health and welfare. Each has a clear public purpose.

But Dushoff says cities are becoming more willing to use eminent domain to benefit private, rather than public, interests.

"If a person's land is being taken for a freeway or a water treatment center, they're not happy, but at least their land is being taken away for a genuine public purpose. You get a totally different reaction from people whose land is being taken for the benefit of developers for a manufactured and artificial purpose," Dushoff says.

But in cities across the nation, more and more property owners find themselves forced to make way for new shopping centers and other profit-making ventures, says California anti-redevelopment activist Art Zich, who's studied condemnation cases in 33 states. "Cities are declaring pieces of private property blighted--by a very loose definition of blight--so that they can condemn and seize the property for a dime on the dollar to give it to private developers for their private profit," he says. Usually, the threat of condemnation alone is enough to convince property owners to sell rather than take a chance on what the city will offer as "fair market value" for their property.

Minutes of Scottsdale's redevelopment board show that city staffers are aware of a shift in the use of eminent domain: "Ms. [Martha] West [a city planner] stated that there is a need for greater understanding of the Enhanced Services District in general and stressed that the meaning of redevelopment is very different in the 1990s as opposed to condemnation and slum clearance as reflected in the 60s and 70s."

 

State law required that a city such as Scottsdale justify its use of eminent domain for urban renewal by declaring a redevelopment area a "slum," even if the worst that could be said about it was the presence of peeling paint and a diversity of owners. (In the case of downtown, the city reported that 494 different people and corporations own about 898 parcels--a shocking case of small-time ownership that, somehow, contributes to downtown being a "slum.")

Dushoff says the process has become a sham. "Where people are legitimately concerned is where owners are being cleared out for private developers. And in my opinion, the courts have made a mistake in giving up their judicial oversight of it."

In a 1983 opinion, the state's supreme court ruled that "determination whether subject properties were slum or blighted areas, and, thus, subject to condemnation for clearance and redevelopment, was for city council, not this trial court."

In other words, if a city calls it a slum, it's a slum.
And last year, the state legislature made things even easier by deleting the words "slum" and "blighted" from the law governing redevelopment areas. For some, the semantics are profound. "Thank God the state no longer requires you to use that language," says a relieved Mary Manross, a member of Scottsdale's city council.

In the future, project-happy Scottsdale will simply be required to declare an area in need of "redevelopment" and will then be able to clear out owners with condemnation.

The city's justification: Such projects, while benefiting developers to the tune of hundreds of millions, also benefit the rest of Scottsdale in the form of sales-tax revenue and jobs. The pluses of gleaming new shopping centers, in other words, outweigh concerns about government interfering with private-property rights to the benefit of developers. Surprisingly, in a state that resists government action even for such unquestionably public purposes as equalizing school funding and funding health care for children, such government meddling in free enterprise has escaped the watchful eye of political conservatives.

Fred Unger, at least, claims not to relish the city's helping hand. "I haven't received a handout in my life in my business dealings," he says.

Yet besides the use of the city's eminent domain powers, Unger will no doubt also ask Scottsdale to hand over considerable financial incentives to complete his ambitious project. He says those amounts are still being worked out, and he couldn't provide details.

Considering Scottsdale's giveaways on the north side of the canal, Unger can expect that next month's likely approval of his plans will be like Christmas in June.

Gary Tredway doesn't understand why developers should be paid money to entice them to build projects they should want to build in the first place.

It's a form of corporate welfare that the Scottsdale resident has railed against as an activist and contributor to the monthly Current. He's reported on a $150 million giveaway Intel received from the City of Chandler and criticized incentives Phoenix extended to a Sumitomo silicon-wafer plant--which, New Times found, could total $80 billion over the life of its lease.

"Then," Tredway says, "I found out I was living only a mile from the center of the subsidy stream."

Tredway owns and operates a small hotel just southwest of downtown Scottsdale. He also runs a natural-foods mail-order business, but both enterprises leave him considerable time for his real passion--keeping an eye on local government.

Last fall, for example, he participated in a forum attended by the Scottsdale city council by putting the council on the spot: Could any of them describe how much the city had given up in incentives to bring Nordstrom to the Waterfront?

Tredway says councilman Richard Thomas answered that Nordstrom had been given a 90 percent sales-tax rebate, but none of the councilmembers (all but the mayor were present) could describe the rest of the city's giveaways. Like the 90 percent tax rebate that Westcor, Fashion Square's owner, will also receive on sales increases (above normal growth) experienced by the rest of the mall because of the Nordstrom presence. Part of the rebates will be used for lease payments by the city for a parking garage being built by Waterfront developers, a lease which will cost the city $80 million over 30 years. The city will also provide $5 million in canal-bank improvements, and gave away air rights to the 200,000-square-foot retail bridge Westcor is building to connect Fashion Square and Nordstrom.

 

Yet most of these subsidies only came to the public's attention after the city council had approved the pact with Waterfront developers. And even months after the deal, when Tredway asked his question, councilmembers seemed unaware of what they'd given away.

Scottsdale resident Lida Stewart also attended the meeting and remembers the council's reaction. "They don't want to let us know about a lot of things, and incentives is a touchy matter. It's possible that some of them don't really know what's going on."

Councilwoman Mary Manross doesn't remember the meeting, but she denies that the council is uninformed. "I don't think it's true that we don't do our homework. And I don't know if there's anyone more skeptical about incentives than me," she says, describing herself as "stingy" with city money. Gary Roe, meanwhile, says that city staffers constantly brief councilmembers to keep them up on the details of redevelopment.

But if that's the case, why did Manross encourage John Mollard to build in an area that the city was preparing to designate a slum?

"I know that no one's intention was to encourage John to spend this money and then hurt him," she says. "I put a lot of effort to work with staff to make sure he met all of the stipulations. It was difficult getting it done. I had no intentions of turning around a month later and hurting him."

But that's apparently just what the city did. And it decided not to say anything to Mollard about it. City spokesman Pat Dodds admitted that Mollard had not been sent anything in writing about the redevelopment plans, but mentioned news coverage, implying that Mollard should have known about it.

"They don't tell you anything unless you ask," says Barbara Bartlett, owner of Picknicken, a restaurant on the corner of Sixth Avenue and Stetson Drive.

Like Mollard, Bartlett faces eviction. But as a tenant--she rents the restaurant's space from a building owner--she won't get a dime for the place. And she doubts she'll be able to handle the higher rents Fred Unger will have to charge to recoup the cost of building his village.

"The people on Sixth Avenue have been the people who really took a chance on this neighborhood," says Bartlett, remembering the dismal time when Galleria construction slowed business to a crawl and only slowly rebounded. It's ironic, Bartlett says, that the same people who suffered during the Galleria's construction will be the ones who lose out in its resurrection.

"I don't want to move," she says. "I love this neighborhood. I've been in it 16 years, and I hate to see anything happen to it."

Pottery merchant Dick Ryan has watched the neighborhood evolve for even longer. The 77-year-old owner of Pottery Paradise has been selling on the same Scottsdale Road location for 45 years. "I don't know whether I'm battling Fred Unger or the city," he says, but he seems to understand that he'll soon be battling over what price his land is worth and not whether he can leave or stay.

Masa Kudo, the owner of nearby Kyoto restaurant, seems to have planned ahead better than his neighbors. Hearing talk that the waterfront would be developed and along with it his property, which lies hard against the canal's south bank, Kudo six years ago bought land in another part of downtown for the day he would have to move his restaurant.

Recently, Kudo says, Fred Unger offered him $600,000 for his restaurant, and Kudo told him to go fish. His sushi grossed him more than $2 million last year, and he'll wait to see what the city will offer in a condemnation. It won't be much problem for Kudo to move his restaurant, and he's really only concerned about getting a fair price for his current building.

He sympathizes, however, with John Mollard, who is a frequent customer, and who today is finishing up a meal of sashimi that he dips in lemon juice and wasabe. Mollard says he's given up soy sauce for his heart.

Mollard flinches when he's asked whether he won't come out all right when the city takes his home. "The issue is not the money. The issue is, why should I move?"

He thanks Kudo for the meal, and they chat for a bit about the other city matters, and then the antique dealer leaves. A short walk later and he's back to his own part of Scottsdale's slum.

Contact Tony Ortega at his online address: tortega@newtimes.com


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