Axon's Scottsdale apartment proposal accused of "cheating" schools out of funding

The intrigue: Residential development is prohibited on the 74-acre parcel Axon purchased from the Arizona State Land Department in 2020 for $49.1 million, and Axon is asking the city of Scottsdale to lift the restriction with a zoning change.

Why it matters: The State Land Department sells and leases land to fund K-12 schools and other public institutions, sending all revenue to designated beneficiaries.

• If residential development had been allowed on the parcel when it was auctioned in 2020, the state could have appraised it at a higher price, according to a state report.

State of play: The Axon land is subject to a master development agreement that spells out where residential, industrial and commercial development is — and isn't — allowed.

• The Crossroads East plan was established by the State Land Department in concert with Scottsdale in 2002 to maximize the potential of one of "the most visible and important undeveloped" swaths of state trust land left in metro Phoenix, per a state land report.

Flashback: The agreement, which governs the Axon parcel and about 1,000 additional acres of land, was last amended in 2018 to add residential development to meet growing housing demand. But it continued to specifically prohibit it on the land Axon later purchased.

• During a public meeting in 2018, State Land Department representatives said the parcels that were rezoned to include residential development could see increased land values between $500,000 and $750,000 per acre.

The latest: Scottsdale had planned to start the rezoning process this week. Because of the development's proximity to Scottsdale Airport, the airport's advisory commission was scheduled to weigh in on Axon's request Wednesday, but the issue was pulled from the agenda Tuesday because staff decided it was "too premature … at this time," city spokesperson Kelly Corsette says.

• Scottsdale spokesperson Holly Walter tells Axios Phoenix that Axon must work with the State Land Department to amend the Crossroads East development agreement before the zoning case goes before the Planning Commission or City Council.
• The Land Department declined to comment on the Axon rezoning case, but it told Axios Phoenix the company had not submitted a request to amend the Crossroads East plan.

What they're saying: "If Axon wants to do the right thing and write a check for $125 million to public schools, I will go away, as the public schools should not be cheated," says Mike Lieb, a Valley real estate leader who's been involved in the development of more than 50,000 residential units in metro Phoenix over three decades.

• Lieb points to a state land auction last year for comparison. Garden Communities purchased a 41.2-acre property north of Desert Ridge Marketplace for $44.1 million. That parcel was zoned for 882 apartment units, equating to about $50,000 per unit.

• Lieb tells Axios he thinks the Axon development should be valued similarly, and at 2,500 units, that's $125 million.

Between the lines: Lieb says Axon is attempting to circumvent the "integrity and professionalism" of the State Land Department by going through Scottsdale for the zoning change.

• Lieb also says that any zoning change would devalue other state land already zoned for residential development.
• He has been involved with about 10 state land deals within 2 miles of the Axon site over the past decade. He says "this isn't about competition, this is about fairness, as the other 10 sales were appraised as residential, noticed as residential and auctioned as residential."

The other side: Axon did not respond to specific questions about the zoning case.

• In a statement to Axios, the company said: "As we all know, the last few years have significantly changed the office world in many ways and our plans have evolved to address those changes, as well as the shortage in housing felt around the Valley, but certainly in Scottsdale. Adding additional office without additional homes for employees to live in is a real challenge."

The big picture: Mark Stapp, executive director of the Master of Real Estate Development program at ASU, tells Axios Phoenix land value is determined by a multitude of factors, so it's hard to know how much the Axon land could have sold for if it had been zoned for residential in 2020.

What we're watching: When asked his opinion on Axon's zoning case, Scottsdale Mayor Ortega said in a statement that the city's voter-approved general plan aligns with the Crossroads East agreement, which prohibits residential development on Axon's land.