Talks starting with Peach Properties to build hotel, apartments, bus depot along freeway frontage | Business

Negotiations will start to sell 8.41 acres of city-owned land along the freeway frontage road for $5.31 million to Downtown stalwarts Peach Properties. Peach proposes to build a 120-room hotel and 340 apartments on the strip between Congress and Cushing streets.

The Peach proposal also calls for building a Greyhound terminal on 1 acre at the south end of property. This would solve the controversial matter of where to relocate Greyhound, which presently has its temporary terminal on that property.

The City Council on July 6 gave City Manager Mike Letcher the go-ahead to negotiate a preliminary development agreement outline with Peach. But the council added a condition that Letcher reports back responses to council concerns about how to the Request for Proposals proceeded.

At question was Peach owner Ron Schwabe’s proposal to build a pedestrian bridge from the property across Congress to the City/State Garage. Schwabe’s proposal calls for the city setting aside $1.6 million of his $5.31 million purchase payment to fund the bridge.

Council member Shirley Scott said a resident pointed out to her that setting aside money for a bridge was not part of the RFP and that the “City was not getting the best deal. You’re only getting $3.7 million. The person said it was not a valid RFP.”

Council members Regina Romero and Karin Uhlich both found great favor with the Peach proposal, but Uhlich did tune in to Scott’s concern.

“We need to be hyper vigilant that we described what we were looking for in the RFP,” Uhlich said.

City Attorney Mike Rankin assured the council the RFP was properly handled.

“I don’t think the (resident’s) legal matter hold water,” Rankin said.

Council member Steve Kozachik also wanted to make sure the RFP had no holes, but Kozachik senses the proposal process was correct.

“This was an RFP,” Kozachik said. “It’s not a bid. The process evolved to where it is. We need to recognize this was asking for proposals.”

The Request for Proposals was primarily to sell or lease the 8.41 acres with only one use restriction: no gasoline services. The RFP requested no specific use other than “consideration for mixed-use development purposes with an urban aesthetic design.”

Rankin said he would report back to the council before the September council meeting.

In the mean time, Hector Martinez, director of the city real estate program, will start negotiating a development agreement with Peach. He said the development agreement for the sale  will likely include language that Peach will build a transit facility to fit the city’s need, and the city would lease the property for Greyhound’s use. Schwabe months ago indicated Greyhound was part of his proposal.

Negotiations for the development agreement will probably fill the rest of the year with the sale predicted to close 120 days after that, some time in early 2012, when Schwabe wants to start construction.

Tucson-based Peach Properties submitted one of three proposals for the property, but one only included a hotel on 3 acres, and the Evergreen Real Estate Development proposal had a first phase hotel and restaurant along Congress but was vague about future residential and office for the remaining acres.

The selection committee consisting of Rio Nuevo board members Mark Irvin and Rick Grinnell, developer Tom Warne and Ron Lewis, director of the city General Services Department sided with the Peach proposal, the only one with specific plans for the full acreage,

Peach already has an extensive track record Downtown.

Peach owns the 1 E. Toole and 119 E. Toole (Dinnerware and Borderlands Brewery) warehouses, is a minority owner of the One North Fifth commercial space, and restored the 1910s façade of the 64 E. Broadway building that Peach owns and leases to Providence Service Corp.

Peach also was a winning proposer for a student housing project for University of Arizona students slated for the southeast corner of Broadway and Fifth Avenue.

“Over the last few months, we have become keenly aware of this parcel’s profound role in the full and successful resurgence of Tucson’s Downtown,” Peach Properties owner Ron Schwabe wrote in his June 1 last and final proposal for the frontage road parcel. “Quite simply, this is the City’s last material opportunity to influence the development character of Tucson’s Downtown West End Gateway.”

The Peach proposal for the freeway frontage would be the largest Downtown development in terms of acreage since the federal courthouse was built in the late 1990s on about half the acreage. Urban renewal in the early 1970s was the last time the Downtown core has seen this much acreage developed.

“It’s a showcase property,” said Tim Murphy, a city special projects coordinator who worked the request for proposals for the property. “He’s biting off a big chunk. We hope we can make it successful.”

Peach offered $5.31 million for the strip, nearly matching the appraised value of $5.35 million. Peach asked that up to $1.6 million of that be used to build a pedestrian bridge across Congress Street to link the hotel with the City/State Garage.

Peach added the City/State Garage element to its proposal in the months since first replying to the city’s request for proposals last fall. Schwabe noted the 1,298-space garage averages annual occupancy of only about 50 percent.

“Use of existing city parking will allow for ‘urban density development,’” Schwabe wrote. That means much less parking on what would be the Peach parcel itself, increased revenue for the City/State Garage, and an estimated savings of $12 million by not having to build a garage.

“I really like the idea,” Council member Regina Romero said. “Peach Properties makes dense use of that land. It connects that piece of property with a garage that has historically been very, very poorly used. An important part is the developer wants to keep Greyhound there.”

Schwabe proposes a 120-room hotel designed by local architecture firm FORSarchitecture+interiors, which has designed several Downtown interiors.  Schwabe also proposed a 340-unit apartment structure, 50,000 square feet of commercial, and 1 acre dedicated to transit, likely a permanent Greyhound terminal to replace the temporary Greyhound station already in place on the property.

Schwabe pencils the bridge in for the  first phase of construction, starting in early 2012, but Martinez said it has not been negotiated whether Peach or the city will build the bridge.