A proposal to build a Sam's Club on city land at Interstate 19 and West Irvington Road is on hold because city officials overlooked a restriction prohibiting retail development on the site until 2017.
The deal would have netted the city $4 million for the land, which could have eased some of its immediate budget woes, and could have provided a significant ongoing flow of sales taxes for years to come.
A 2004 agreement with Scottsdale developer Barclay Group, which built the Tucson Spectrum, Home Depot and Target on the south side of Irvington Road, contains a clause excluding retail development of the 22-acre property on the north side of the street - which the city now wants to sell - until 2017.
The City Council unanimously approved the agreement in December 2004, but the restriction on competing retail development on the adjacent piece of city property was inexplicably never recorded.
City officials said they weren't aware of the restriction until after they offered the property for sale and received a proposal from a developer representing Sam's Club, at which time an unidentified "third party" brought it to their attention.
City Real Estate Director Hector Martinez said the city is negotiating with Barclay in hopes it will sign off on a sale.
Robert Austin, senior vice president of operations for Barclay, declined to comment, saying the issue is "in the hands" of the commercial developer's lawyers.
Councilwoman Regina Romero, who represents the area, said she was unaware of the restriction when the council voted late last year to market the property on the north side of the street, which is appraised at just over $4 million.
Romero said the city is not reliant on sale of the property to balance its current budget, and she hopes road improvements planned for the area will increase its desirability for developers - be it the developer representing Sam's Club or another buyer.
Martinez said Barclay closed the Spectrum deal with "their own title company in Scottsdale." The restriction went unrecorded because its details were not finalized between the city and Barclay before closing of escrow, he said.
Property restrictions are recorded with the Pima County Recorder's Office. Martinez said a title search showed no restriction on the use of the property, so that was the information his office included in the request for proposal sent out in February.
"We had no reason to look at the parcel to the south," he said. "Had there been, we would have looked through those documents."
Who was responsible for recording the development restriction is up for debate.
Greg Furrier of Picor Commercial Real Estate Services said sales contracts generally determine who is supposed to register a restriction on a neighboring property with the recorder. But the wording of the development agreement between the City Council and Barclay is unclear.
The document approved by the council assigns the responsibility to the city, but also stipulates that the language of the restriction be finalized during closing.
John Updike was the city's real estate administrator when the council originally approved the sale, but left the position nine months before Barclay took control of the Spectrum property in 2007.
Lou Ginsberg, now under investigation by the FBI and the state attorney general, headed the Real Estate Department when the Spectrum deal finally closed in 2007, and remained in that position until stepping down just before the request for proposals for the north side property were sent out earlier this year.
But Furrier said a buyer's (Barclay) title company is also responsible for making sure a restriction against a neighboring property is recorded.
Martinez said the city is working with Barclay to "see if there is a way to keep moving forward on the sale" of the property. But there is no timetable for when, if ever, a new agreement can be expected to reach the council.
Councilman Steve Kozachik said he is hopeful the deal with Sam's Club can be salvaged, and that Barclay would view it as symbiotic instead of competitive.
Still, he said the situation is "another example" of the city's moving forward on a project without doing its due diligence. "The city ought to show more professionalism," he said. "Read the damn contract before you put out the RFP (request for proposal). We're not that short of staff."
Matthew Casey is a University of Arizona journalism student apprenticing at the Star. He can be reached at firstname.lastname@example.org