Tempe Marketplace Moves Forward

After months of legal wrangling, Tempe Marketplace, a $250 million "megamall," has finally begun construction near the intersection of the Loop 101 and Loop 202 freeways in Tempe, Arizona. The shopping center, containing 1.3 million square feet of retail, dining, and entertainment, will open in the summer of 2007 and is expected to attract 20 million visitors during its first year.

The Mayor and City Council of Tempe have aggressively supported the project, largely because of the sales tax revenue it will generate. Cities across the country depend on sales tax receipts to fund municipal services; unlike property tax, which can only come from within a city's boundaries, sales tax can be collected from citizens of neighboring cities. Tempe Marketplace, at a key location near two major freeways, will attract shoppers from nearby Mesa, Scottsdale, and Phoenix whose expenditures will subsidize Tempe's government.

Unlike most cities in metropolitan Phoenix, Tempe is "land locked," meaning that it is unable to annex adjacent areas and expand geographically. Since there is little undeveloped land left within the city, the focus has shifted to "redevelopment" of existing areas into more intense (and profitable) land uses. In past years, the site of Tempe Marketplace was regarded as a "marginal" area, a former landfill occupied by industrial businesses and junk yards. But after the Loop 101 and Loop 202 freeways were completed in the 1990's, the district became "prime property," a tempting target for redevelopment.

Developer Vestar, which has been building shopping centers all over metropolitan Phoenix for decades, seized the opportunity and pitched its plans for the largest open-air mall in the state. In addition to 800,000 square feet of "big box" stores such as Best Buy, Sam's Club, and Target, the project would feature a 400,000 square foot "lifestyle center" with smaller stores, restaurants, and a multiplex cinema oragnized around an outdoor promenade. The proposal captured the imagination of Tempe's leaders, who committed themselves to making Vestar's dream a reality.

The City of Tempe worked expeditiously -- it rezoned the land, declared the area "blighted" and incorporated it into an official "redevelopment area," and arranged for millions in Federal funds to cover the environmental clean-up of the heavily contaminated "brownfield" site. Tempe officials bragged that they were transforming a long-neglected corner of the city into a beautiful "gateway" that residents would be proud of. There was one major obstacle, of course: the Tempe Marketplace site was not a "blank slate." The 117 acres Vestar coveted were already developed and were owned by 52 seperate entities.

Under the aegis of its "redevelopment" authority, Tempe negotitated with the 52 property owners to voluntarily sell their holdings to make way for the shopping center. Some owners were more cooperative than others. Growing increasingly impatient, the City threatened to "take" the property of the "holdouts" through eminent domain, the most powerful legal tool a public entity can wield when it wants land. Eminent domain allows the government to buy your land for a "public purpose" whether or not you want to sell it, provided the government pays you "fair market value." Originally reserved for projects such as roads and schools, eminent domain is now commonly used for "redevelopment" and "economic development" purposes -- even for shopping centers like Tempe Marketplace.

Last year the United States Supreme Court upheld the right of local municipalities to employ eminent domain for "redevelopment" purposes in its decision on Kelo v. New London. While the Supreme Court may have sanctioned Tempe's actions, the Kelo decision was extremely controversial among "property rights" advocates. Energized, Tempe Marketplace "holdouts" pledged to continue their fight, which many people in Arizona were sympathetic to. Unfazed, Vestar announced it would simply build its project "around" the properties the City couldn't buy.

City officials wisely took note of the political environment after Kelo and continued negotiations to buy the remaining properties without using eminent domain. Earlier this month, only days before a case concerning Tempe's use of eminent domain was to be heard before the Arizona Supreme Court, the final property owner agreed to sell. The project can now proceed as originally planned. While the outcome may be a "win-win" for all involved, the hard-fought battle that preceeded it teaches an important lesson: cities in Arizona (and across the country) may be amorous of the sales taxes that new shopping centers can bring but will find it difficult to label a mall a "public purpose" that merits the use of eminent domain.