COVER STORY, DECEMBER 2005

RAISING THE ROOF
How do building heights factor into the battle for economic prosperity?
Ned O'Hearn

While Chicagoans quietly muse over the idea of a spiraling 2,000-foot hotel/ condo tower augmenting their already soaring skyline, building heights of more restrained architectural vision are causing quite a stir in the Valley of the Sun. The battle cry around Phoenix has nothing to do with making a global statement in the sky; it's all about economic development — two words that can make neighboring cities tend to forget about being neighborly.

The focus here is three cities that share space, sometimes uncomfortably, in the same broad desert valley — Phoenix, Scottsdale and Tempe. Some believe that how each city responds to surging demands for more accommodating building heights will determine how it fares in the elbowing for bragging rights and tax dollars.

With real estate development piping hot, and prestige and tax dollars on the line, the three cities offer a near perfect crucible for comparing and contrasting different philosophies about how building heights can promote — or compromise — municipal economic development goals.

The dilemma for urban planners and economic development gurus is that there's no set formula for converting height allowances into economic gain. Over time, building skyward can nourish or choke a neighborhood, build pride or resentment among residents, help an area gain or regain economic footing, or, should infrastructure get overburdened, set in motion a gradual slide.  

Phoenix is at the heart of the most recent heated conflict — how high should developers be allowed to build in the Camelback Corridor? This stretch of Camelback Road, roughly between 16th Street and 44th, has emerged as Phoenix's showcase office, retail and residential submarket. Throughout the Valley, all high-profile, multi-use urban nodes get measured against the Camelback Corridor — sometimes called Phoenix's Rodeo Drive — in terms of market rents, fashionable name brands and overall prestige.

For many businesses, retailers and even residents, it's a “must place” to be, to the point that some of the biggest names in the development world — names like Hines, Opus, and, of late, Trump — are busy staking out a spot or two.

But there aren't that many spots to claim near the 24th Street epicenter, and with residential condo developers vying with office builders (usually successfully) for land and underused sites, prices are figuratively going through the roof. And, in order to make those land prices make sense, the roof is also going up — literally.

In late September, in a 5-4 vote that had all the passion and hype of a homecoming game, the Phoenix City Council raised the Camelback Corridor roofline from 56 feet to 140 feet for Donald Trump and his development partner, Bayrock Group, and to 165 feet for Westcor.

The council's landmark policy decision has economic development advocates taking sides on whether tall buildings will prove to be a boon or bane for places like the Camelback Corridor. One side argues that maintaining status quo heights while competing areas are lifting restrictions would drive glamour projects and their tax dollars elsewhere. The other side claims that changing the character and balance of an area by obstructing views, overtaxing infrastructure and adding to traffic woes will eventually have the same result.

“The market ultimately drives where people and businesses go,” maintains Phoenix Councilwoman Peggy Neely who supported the height increases. “This was an economic decision made to protect the area in the long term. You can't ignore the market.”  

Neely isn't mesmerized by the Trump name, but does admit that some might see it as a draw. “I know people who visit the Trump Tower when they're in New York,” she says. “We need quality projects here that become destinations.”

Not everyone agrees. Betty Drake, a long-time urban planner and first-term City Councilwoman in Scottsdale laments the Phoenix Council's action. “I think that the city has sent a most unfortunate message,” she states. “The Trump project will be smack-dab up against a neighborhood that has been on the defensive since the early 1980s, and it does nothing to encourage resident reinvestment in neighborhoods south of Camelback.”

Then, of course, there's the sticky internal issue of creating high-rise competition with one's own downtown — a downtown in Phoenix's case that, as it seeks to revitalize itself, doesn't need more competition at the moment. It already has Scottsdale to think about.

Scottsdale sits just to the east of Phoenix, but, in terms of economic development, likes to believe that Phoenix lies in its slender shadow. “In Scottsdale, it's not about height, it's about ‘character,'” insists Economic Vitality General Manager, Dave Roderique. In Scottsdale, “character” wistfully translates into pedestrian-friendly buildings, generous setbacks, distinctive architecture and unobstructed mountain views.

But passengers on flights out of Phoenix's Sky Harbor Airport will soon be surprised to see two 140-foot towers sprouting up where they know downtown Scottsdale to be. “The North Waterfront project was a turning point,” Roderique admits. “It challenged us to redefine what we meant by ‘character.' Earlier proposals didn't have the height, but they literally smothered this critical downtown site [across from fashionable Fashion Square Mall], leaving no room for open space. The North Waterfront condo towers feature greater height — but not the mass. You have to make a choice.”

Roderique isn't sure if the project being built by Opus and local developer Geoffrey Edmunds will trigger more tall building proposals in Scottsdale. “It's a wait-and-see situation,” he cautions. “We'll know more when it tops out. If people gasp as the girders go up, then it might be some time before we see another high-rise proposal. If it's a non-event then maybe we'll see more.”

Although Scottsdale might project a casual indifference about what its neighbors are up to, there's a growing sense that economic development is a competitive game that everyone must eventually play. “Character and building height don't have to be incompatible,” suggests Scottsdale Chamber of Commerce incoming President and CEO Rick Kidder, “as long as one defines character as evolutionary and not static.”

Kidder senses pressure looming from both east and west. “In places like the Airpark and sections of Scottsdale Road directly across from Phoenix, there'll be pressure to go higher, especially as redevelopment occurs on infill sites and as competition intensifies from Phoenix and the Native American community. Ignoring that pressure could be dangerous.”

Councilwoman Drake echoes that sentiment. “In the immediate vicinity of the Loop 101 we may need to rethink our position on height,” she suggests, adding quickly that any increases should remain sensitive to mountain views and be linked to high standards of planning and design.

Phoenix is already comfortable with the idea of 180-foot buildings rising on its side of Scottsdale Road — three times the height allowed by character-conscious Scottsdale on the other side of the street. And no one knows for sure how high they'll go on tribal land east of Scottsdale, but a good guess is that only the market will impose restraint.

“The economics are fairly simple,” insists Geoffrey Edmunds, a high-profile local developer whose projects range from fancy mid-rise condos in the Camelback Corridor to a posh residential community on tap for north Scottsdale. “If the footprint is small, and the price of land is high, there's no place to go but up…or move elsewhere.”

Edmunds believes that cities like Scottsdale should be more flexible by designating areas where taller buildings and greater densities will be allowed. “Scottsdale couldn't compete for some projects that crossed the border,” he notes, citing Kierland Commons (Phoenix) and Pavilions (Native American land). “Zoning should have a visionary component.”    

Such comments underscore a fundamental advantage that developers have — freedom of movement. Conversely, municipal economic development maestros must stand at their borders, luring developers into their realms by waving whatever incentives their laws and political bosses will allow.

And some of those incentives don't seem to be worth the headaches they can cause. “Cities basically have three types of economic development tools — legal, financial, and regulatory,” explains Scottsdale's Roderique, “and the first two are falling out of favor.”

Despite the Supreme Court's June ruling in Kelo versus the City of New London, which set the precedent for cities to condemn private property in the name of economic development, only Tempe in the Valley is aspiring to exercise that right. In the manner of the Old West, some cities are “cutting conflict off at the pass” by distancing themselves from the landmark ruling. In October, for example, the up-and-coming town of Queen Creek, 20 miles southeast of Phoenix, passed a resolution prohibiting the use of eminent domain for economic development purposes.

“This is the West,” notes Institute of Justice Executive Director Tim Keller. “People don't take kindly to having their property snatched away from them by governments.”  

Financial incentives, or subsidies, also seem headed for the chopping block. “Time was when developers would call on cities looking for the biggest handout,” recalls John Berry, a prominent zoning attorney. “That's changing; cities are getting more sophisticated and don't want to play the subsidy game against each other.” And if playing nice isn't reason enough, the Arizona state legislature is poised to get involved if cities insist on using tax dollars as currency in economic development roulette.

By eliminating legal and financial incentives from their arsenals, cities have little choice but to zero in on regulatory incentives — such as height allowances — to further their economic development goals.

No city in the Valley has more aggressively looked upwards to see its future than Tempe. Nestled east of behemoth Phoenix and south of burgeoning Scottsdale, tiny Tempe, in the manner of its highest profile enterprise — Arizona State University — thinks big. It even built a lake to add the luster of a desert shorefront to catch the eye of developers.

Height really isn't an issue in Tempe, where 30-story towers could be commonplace as downtown redevelops. “Cities, like people, either grow or die,” reasons attorney Berry. “Tempe is small and can't expand, so it's doing what it has to do to grow — it's looking up.”   

In stark contrast to Scottsdale, Tempe is rather nonchalant about tall buildings in its downtown and along its new lakefront. “We haven't pinned down a council position or policy decision on height and density downtown,” notes veteran Tempe City Councilman Leonard Copple.

Copple's council has already approved four 22-story residential towers downtown, and developer Avenue Communities might be looking to add to that. “We'll certainly consider a request for additional stories,” Copple admits, “but I'd personally like to see the developer give back some incentives in return.”

So, as an economic development card, building height can be played both ways. Toll Brothers' vice president of land acquisitions, Charles Hare, who fancies some big project ideas of his own in the Valley, also likes the use of height where it makes sense, especially in multi-dimensional projects. “Urban areas need to be vital,” he reasons. “The sense of vitality is much more pronounced in large mixed-use developments that are concentrated — not spread out.”

In the trickle down business of economic development, developers respond to market forces and cities respond to developers. “The Camelback Corridor issue was a classic example of a market opportunity driving a policy decision,” observes Berry. “That's okay to a point, but later on you still have to face the hidden costs. That area has significant water and sewer issues, for example. Prosperity can come with a price.”

Berry raises an interesting and fundamental question about thinking ahead. “Cities under pressure to expand their tax bases often make poor development decisions, especially when the economy is dragging,” he says. “Then when the good times come back they wonder how all those ugly or inappropriate land uses ever got approved.”

Although cities would like to be in control of their skylines, the market, like a rebellious teenager, doesn't pay too much attention to rules. Even applying Kidder's “evolutionary” thinking, there'll never be a perfect world where tall buildings rise where planners want them, where infrastructure always precedes construction, and where economic development windfalls are happily and evenly shared by neighboring cities.

The competition for economic development will go on — sometimes on neighborly terms, sometimes not. Only one thing seems certain — in the debate over who'll win out, opinions on the value of a “view from the top” will always be heard.     

Ned O'Hearn is a principal with Scottsdale, Arizona-based Boulders Realty Advisors.


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