Plans have fallen through for USA Place, the large mixed-use development project in downtown Tempe where USA Basketball had been slated to relocate its headquarters.
In a statement late Friday evening, Arizona State University, which had planned to lease a parcel of its land for USA Place, said the deal with developer USA Place LLC was dead and that it would be pursuing other partners for the project.
ASU said things fell through after USA Place missed several contractual deadlines and failed to make a required deposit in an escrow account.
“Arizona State University has been more than generous in granting multiple extensions to deadlines to USA Place in its efforts to secure this ambitious project," the statement said. "USA Place failed to deposit the required deposit in the escrow account. Instead, USA Place's potential equity partner deposited funds in an unrelated escrow account, which was under the unilateral control of that equity partner. Arizona State University had no access or right to those funds. Any suggestion that this escrow deposit satisfied USA Place's obligations is incorrect."
The statement was released after the Phoenix New Times reported last week that USA Place had missed its Dec. 31 deadline to secure financing for the estimated $350 million to $450 million project.
USA Place is an entity comprised of the project’s development team and is led by Concord Eastridge, a commercial developer based in Scottsdale.
The developer had previously stated construction would start early this year on a roughly 10.7-acre site owned by ASU, which is located near the southeast corner of the bustling University Drive and Mill Avenue intersection. Blueprints called for office, retail, apartments, a hotel and conference center that was to also serve as the new headquarters and training center for USA Basketball and the Arizona Interscholastic Association.
Concord Eastridge declined to comment. However, in a statement to the New Times last week, the firm said it had made a $1 million escrow deposit as required by ASU and was planning to put up another $4 million in hopes of keeping the deal alive.
ASU, on the other hand, said the escrow deposit was never made and it “must now look for alternative developers to advance the project,” the statement said.
Mark Stapp, director of the Master in Real Estate Development program at ASU’s W.P. Carey School of Business, said USA Place was overly ambitious from the get-go and financing was one of its biggest challenges.
“Although we’re a maturing marketplace, that’s still a quantum leap to try to pull that off,” Stapp said.
He said the initial challenge in securing a lender was the fact that ASU owns the land, which means USA Place couldn’t use it as collateral when taking out a loan.
Securing one lender to finance the entire project, which had been the goal, was also difficult. He said most lenders specialize in specific segments of the market, such as office or retail, but this project was a mix of several market segments.
Cost could have also been problematic for lenders.
Stapp said the developer would likely have to charge tenants high rents to make the project pencil out.
That means only high-end retailers could afford to be there, which may not bode well for a sports-oriented project located in the heart of a college town, he said.
Plus, he said, the downtown Tempe office submarket is fiercely competitive and there are other nearby shopping centers, such as Tempe Marketplace and Scottsdale Fashion Square, where high-end shops might prefer to be.
“I think that the retailers they’re hoping to be able to get, you’re going to have difficulty leasing to and having them pay the kinds of rents you need,” Stapp said. “There’s a highly competitive environment that’s got a finite amount of market capacity, and you’ve got a very expensive, difficult-to-finance project that requires high rents. It’s hard to underwrite.”
On top of all that is the traffic problem, he said.
Downtown Tempe is already known for its traffic congestion and even without USA Place, the problem is sure to grow worse.
That’s because there are several other big projects underway nearby that are slated to bring tens of thousands more people to the area on a daily basis within the next few years. Some key examples are along Tempe Town Lake, just a mile north of the USA Place site, where State Farm Insurance’s regional headquarters, Hayden Ferry Lakeside’s final office tower and a luxury apartment complex are all underway.
“If it becomes so congested that people don’t want to go there and there’s no significant public transit option that’s really efficient and easy to use, it may not be desirable,” Stapp said.
