by Max Jarman – Jan. 10, 2010 12:00 AM
The Arizona Republic
At the $300 million CityNorth development in northeast Phoenix, parking spaces are plentiful along the Main Street equivalent known as High Street.
On a recent weekday, a handful of shoppers strolled sidewalks of the four-block-long thoroughfare, meandering in and out of the 14 stores that remain open.
CityNorth was supposed to be Phoenix’s hottest new destination, with luxury condominiums, chic boutiques and, in its second phase, the area’s first Bloomingdale’s department store.
It now sits in foreclosure, unable to pay back loans to its bankrupt lender, the victim of frozen credit markets, plunging retail sales and collapsed real-estate values.
CityNorth joins a handful of visionary but ill-timed commercial real-estate projects that were spectacular initial failures. They include the Camelback Esplanade mixed-use development and the once-luxurious Scottsdale Galleria shopping mall.
Over the long term, those projects evolved differently yet successfully.
Ultimately, developer and former Gov. Fife Symington’s vision for the 22.5-acre site at 24th Street and Camelback Road was fulfilled by investors who bought the Esplanade project for pennies on the dollar at a public sale in 1994. Its buildings now command some of the top rents in metro Phoenix.
But the Galleria, Amram Knishinsky’s 1987 dream of a 1.35 million-square-foot shopping mall with 245 trendy stores at Fifth Avenue and Scottsdale Road, was not realized.
Thomas J. Klutznick envisioned CityNorth as a vibrant urban center in the middle of the 5,700-acre Desert Ridge community for which his company is the master developer.
And most real-estate experts agree that the CityNorth site at 56th Street and the Loop 101 remains one of the area’s choice commercial locations. As with the Esplanade and Galleria, new investors, along with evolving market conditions, will help shape its still-uncertain future.
Echoes of Esplanade
Like Klutznick’s vision for CityNorth, Symington’s dream of an upscale office, retail and residential development at 24th Street and Camelback Road was controversial and fraught with high-pitched zoning battles.
Symington spent $200 million to develop two 11-story office buildings and the 281-room Ritz-Carlton hotel that opened in 1988. After the savings-and-loan crisis and resulting real-estate crash, the hotel and office buildings were sold in 1994 for $69 million to a Boston investment adviser.
An undeveloped 12 acres, zoned for retail shops, three more office towers and a high-rise condominium building were purchased for $6 million by Francis Najafi’s Pivotal Group and Southwest Value Partners, headed by Phoenix Suns owner Robert Sarver. They partnered with Opus Southwest to built three office buildings, a condominium tower, retail and restaurant space and a movie-theater complex.
Attorney Grady Gammage said it’s common for such major projects to go through several developer/owners, and even foreclosure, because they are long-term projects that often span several real-estate cycles.
Gammage said Camelback Esplanade ultimately succeeded because of the quality of the site and the development plan.
Galleria concept flops
The Scottsdale Galleria was ill-conceived from the beginning, Gammage said.
The anchorless center was supposed to attract high-end boutiques, many by European designers, which would draw customers. The center with marble floors, brass fittings and a huge open atrium opened in 1991 and closed in 1993. The Galleria languished for years as owners struggled with what to do with the property.
Excel Realty trust, which bought the $130 million center for $6 million at a 1993 foreclosure, kicked out the tenants, sold off the computerized fountain that pulsed with music, ripped out the marble and scraped the brass fittings. The failed mall went through a number of subsequent owners, whose unsuccessful proposals for the property included a sports-related mall, Wild West theme park and branch of the Smithsonian. It’s now a successful office building with tenants that include health-care-services provider McKesson Corp.
Bad timing
CityNorth is being developed by a partnership between the Klutznick Co. of Chicago, New York’s Related Cos. and JER Partners of McLean,Va.
High Street opened in November 2008, weeks after the national economy began to seriously unravel.
The market for the luxury condominiums dried up. Retailers waited for customers that never came. Stores without staying power skipped out or never moved in. Others, primarily national chains, are sticking it out, at least until their leases expire.
But some things are working. All of the unsold condominiums have been rented as apartments, and the Related Cos., which manages the project, reports decent demand for office space.
