Downtown Phoenix is getting another trendy, high-rise hotel and office building.
The Phoenix City Council has agreed to sell a small piece of property at Central Avenue and Adams Street for $2.8 million to Berger Holdings. The development group plans to build a 20-story "lifestyle hotel" with a "creative office component."
"We are excited about the project, and we are bullish on downtown," Berger Holdings founder Darryl Berger Jr. said.
The land is currently a 30-space parking lot tucked behind Hanny's restaurant and the One North Central tower. It's one of the few remaining vacant swaths of land in the heart of downtown.
The lot was once home to Switzer's Style Shop, the first Phoenix retailer to specialize in women's clothing.
Walter Switzer launched the department store in 1917 and it expanded to 20 locations in Arizona, New Mexico, Texas and Nevada. Most of the stores were sold to a national clothing company in 1994, according to a 1995 article in The Arizona Republic. The downtown building was later razed.
Berger Holdings is responsible for multiple hotel projects in New Orleans and Nashville, as well as several other hospitality, residential and parking projects across the country.
The development group is partnering with Sunbelt Holdings on the project — a leader in real estate development in the Phoenix metro area.
President and CEO of Sunbelt Holdings John Graham is well connected in Phoenix. The development giant is responsible for dozens of residential and commercial projects in the Valley, including Marina Heights, the 20-acre mixed-use development project along Tempe Town Lake.
The downtown Phoenix project proposal calls for an "iconic" 205,000-square-foot building that includes 220 hotel rooms, two floors of office space, a two-floor parking deck and 6,100 square feet of ground-floor retail.
The project will also bring an enhanced pedestrian experience on Adams Street to encourage walkability in the downtown core, according to the developers.
"The city views Adams Street as important corridor. We are excited to play a part to help activate the ground floor of Adams Street," Berger Jr. said.
The city had the land appraised for $2.73 million last August.
Both Berger Holdings and another developer, M.A. Mortenson, submitted proposals for the property.
Berger Holdings offered $2.8 million. M.A. Mortenson offered $700,000 more.
The M.A. Mortenson proposal called for a 12-story, 240 hotel-room project with no office space.
Berger Holdings estimated its project's value at $61.5 million with 500 construction jobs and 230 permanent jobs. M.A. Mortenson estimated its project value at $54 million with 125 construction jobs and 45 permanent jobs.
After city staff announced an outside evaluation panel made up of local development experts recommend the council accept Berger Holdings' offer, M.A. Mortenson filed a protest with staff, suggesting that Berger would be unable to fulfill its job and design promises.
"Mortenson is reminded of several similar, unfortunate situations, where the city was misled into accepting a developer's extravagant concept and/or offer to purchase, only to later learn that the developer/purchase could not actually deliver," according to the protest.
The city responded that the evaluation panel reviewed both proposals fairly and decided the Mortenson proposal was inferior to the Berger proposal.
According to the panel's scorecard, "Although the Mortenson proposal offered a greater purchase price for the site, the Berger proposal offered more permanent employment opportunities through its mixed-use concept, which could potentially create greater economic impact beyond hotel and restaurant taxes, and the economic impact of adding an iconic building to downtown Phoenix."
At the meeting on June 20 when the council voted to move forward with the sale of the land, members of the Unite Here hotel workers union protested the sale.
They encouraged the city to choose the M.A. Mortenson proposal, which not only had a higher offer price, but more hotel rooms.
"More hotel rooms means tens of thousands of hotel occupancy taxes going to our city. With more hotel rooms, more hotel guests will have an opportunity to come to our city. More hotel guests means more tourist dollars contributing to our growing economy," Sheraton Grand Phoenix employee Sandy Villatoro said.
Maggie Acosta questioned the city's decision to turn away additional up-front revenue.
"Why is the city going with the lower price? Imagine what the city could do with an extra $700,000," Acosta said.
Phoenix Community and Economic Development Director Chris Mackay said the city ran an economic impact analysis on both projects and found the Berger Holding project is estimated to bring in $2.8 million in additional direct sales tax over 10 years.
"We look at the long-term value for the city and what the direct tax benefit for the city will be, not in one cash transaction, but over a 10 year period," Mackay said.
Mark Stapp, executive director of the Master of Real Estate Development program at Arizona State University's W.P. Carey School of Business, reviewed the city's appraisal and said he thought it was a fair assessment of the value of the land.
He said Berger's proposal is "the kind of development the city of Phoenix needs."
Stapp agreed with Mackay that it's important to look at the quality of the project and not just the up-front offer price.
"Good design that addresses pedestrians in that streetscape is probably the most important thing the city can do at this point," Stapp said.