The ROI of RIO

Rio Nuevo Sets Successful Path for Downtown Revitalization

By Jay Gonzales

Downtown Tucson revitalization, and its massive undertaking over the last 10 years, has been about more than return on investment – or ROI − for those who have brought the city’s core back to life.

One might say Tucson has a proverbial bounce in its step thanks to the developers, business leaders, state and local governments and community organizations that have all collaborated to create a hip downtown with hundreds of millions of dollars in investment.

The dollar amounts are staggering but so is the change that has taken place downtown, particularly for those who have been here 10 years or longer and have witnessed the dramatic revitalization.

The Rio Nuevo Tax Increment Financing District – or TIF – was approved by voters in 1999 for the express purpose of revitalizing downtown, but it had a troubled start. More than $230 million was collected and spent through roughly 2009 with little to show for it, generating a collective frown from the Arizona Legislature.

The legislature seized control of the TIF from the city of Tucson in 2009 and after years of litigation to resolve some issues, it appointed a board of directors reporting to the legislature in 2012. Local businessman Fletcher McCusker was appointed as its chair, and the legislature demanded immediate results.

This time, they came in spades.

“I think the thing that matters to them is economics,” McCusker said of the legislature. “It’s not rankings or popularity or livability or walkability. They’re looking at straight-up numbers.”

Since 2012, McCusker said, Rio Nuevo has invested $108 million in TIF funding into downtown projects which has generated more than $1.2 billion in private investment made into hotels, restaurants and bars, office buildings and other amenities.

Independent audit reports are now required by the legislature every three years. The last one, completed in 2022, showed that during that three-year period, for every dollar Rio Nuevo had invested into downtown, the return was $10 in private investment, McCusker said.

The audit “identified us as one of the most effective tax districts in the United States,” he said. “That’s high praise coming from where we were. Our model now is no longer that government does everything. We partner with private-sector developers. That’s a huge piece of the return.”

The private investment dollars add up fast when looking at the major downtown projects.

And, as the businesses and activity have picked up in the Rio Nuevo District, so has the sales tax revenue, some of which goes into the coffers of the State of Arizona, and some of which, through the TIF, comes back to Tucson for reinvestment in downtown.

In the 2012 calendar year, Rio Nuevo collected just over $10 million in TIF funds. By 2023, annual collection of TIF funds had nearly doubled to just under $18 million.

The AC Hotel Tucson Downtown, the first new hotel built downtown in 40 years and built and operated by developer Scott Stiteler, was one of the first “gamechangers” in the revitalization. It had a total building cost of $32 million with a $7.7 million boost from Rio Nuevo in the form of tax rebates. But that level of investment came only after Stiteler and his partners had dipped their proverbial toe into downtown and renovated some apartments and opened Hub Restaurant & Ice Creamery and Playground Bar & Lounge − neighboring establishments at East Congress Street and Fifth Street.

“While some people were saying, ‘Let’s go big…let’s build a hotel,’ I was in the walk-before-you-run camp to make sure that anything I promised would happen and not be delayed or half-realized,” Stiteler said.

As the hotel project took shape, activity was mounting. The Tucson Arena was undergoing its renovation, the start of a $65-million investment into the Tucson Convention Center. The streetcar, at a total cost of more than $200 million, was approved as part of a long-term transportation plan of the Regional Transportation Authority and went into operation in 2014.

Stiteler began to delve into the hotel idea. But it wasn’t just about the investment of dollars and potential for a return, he said.

“I probably spent less time thinking about ROI and more time thinking about being a part of something that had lots of potential and is interesting, fixing − for lack of a better word – a broken area,” Stiteler said. “If I would have spent more time on the cost/benefit analysis and return on investment, it probably would have scared me away.”

The ball was now rolling and more began to happen.

Caterpillar’s Surface and Mining Division, with its 1,100 employees, moved into town with a $50-million building built by Rio Nuevo on city-owned land that was deeded to Rio Nuevo in litigation that took place after 2009. That development brought added life to the Mercado District on the west side of Interstate 10, south of Congress Street.

By that time, The Gadsden Company was all-in in the Mercado District with the $36 million Monier mixed-use project with 122 residential units on South Avenida del Convento south of Congress Street. The $140 million Bautista, a 256-unit mixed-use project on the banks of the Santa Cruz River, is currently under construction and expected to be completed fall 2025.

To help ensure the viability of both of those projects and the Mercado District as a whole, Gadsden invested $3.2 million into the streetcar project to make sure the line reached the area instead of ending at the freeway.

“The certainty of the modern streetcar being funded was critical,” said Adam Weinstein, president and CEO of The Gadsden Company. “It was a major catalyst for our interest in investing in that area.”

HSL Properties pumped in $80 million to build The Flin, a 245-unit residential project on the footprint of the old La Placita Village at the southwest corner of Broadway and Church Avenue, just north of the convention center.

“We already owned the land and we wanted to do something productive with it,” said HSL President Omar Mireles. “But we had to be convinced that the market was going to be attractive to residents.

“We knew there was a lot of excitement about the activities downtown. Rio Nuevo was critically important at getting those venues up, and Downtown Tucson Partnership was doing a lot to beautify the area to foment the business and entertainment down there.”

The Doubletree Hotel built on the TCC property was helped along with $2.5 million coming from Rio Nuevo tax rebates.

Looking back, though, it was a close call for Rio Nuevo to even be able to continue its work after the early troubles. When the new board was appointed by the state in 2012, it was given six months by the legislature to show some progress with the millions in TIF funds that had been generated for investment downtown, McCusker said.

He said the board looked for an obvious and necessary project to kickstart revitalization and to demonstrate a credible use of TIF funds. The TCC, and specifically the Tucson Arena, was it.

“We said that should probably be job one for us,” McCusker recalled. “Let’s do something in the arena itself that will at least attract people back. So we did.”

“It was high stakes,” said Phil Swaim, whose company, Swaim Associates, was the architect of the arena renovation as well as a number of other downtown projects. “Tucson had to be able to come up to the next level and this was one of those key first steps that needed to happen to be able to make it work.”

The price tag for the arena alone was $13 million, but its real value was in the fact that Rio Nuevo could show something was happening downtown not only to convince to the legislature to not shut down the TIF, but to also provide a reason for more investment and for people to start coming downtown for something other than work.

“It had to be done just to make it viable again,” said Glenn Grabski, general manager for SMG, which was hired to run the TCC. “They did a fantastic job of getting so much out of the amount of money they put in. I’m extremely grateful that they did and everything that they’ve done here because it gives me something to sell.”

And that’s what Tucson now has, a downtown that sells.

More than three dozen restaurants and food establishments have been helped by Rio Nuevo. The construction jobs are in the hundreds, if not thousands. People are working and living there. There are now nearly 1,000 hotel rooms in and around downtown within the Rio Nuevo District with one more, the long-vacant Hotel Tucson at Broadway and Granada Avenue, in the works to be renovated and reopened by HSL Properties in the relatively near future.

The Fox Theatre, which underwent a renovation and reopened in 2005, is now undergoing a major expansion to enhance its status as a major downtown entertainment venue.

In 2022, Rio Nuevo sold the theatre to the Fox Tucson Theatre Foundation for $100 to give it the ability to use the building for future financing. The foundation was able to purchase two properties adjacent to the Fox for the expansion, which is planned to include dining space, a rooftop bar, expansion of the lobby and a new entrance.

Rio Nuevo has committed to contribute $2 million in matching funds for the project with a cost estimated to be in the area of $21 million.

“We’ve set forth a bold vision, one that we believe will secure the legacy of the crown jewel of Tucson as not only an iconic, historic building, but also as an enduring, flagship arts organization at the heart of Downtown Tucson,” Fox Foundation Board President Brent Davis said at the 2023 announcement of the purchase of the adjacent properties.

And at 75 E. Broadway, a project that reached the planning and rendering stages as a high-rise office building but fizzled because of COVID, is back on after an Oregon developer, Obie Companies, developed an interest in Downtown Tucson.

Obie Companies was selected by Rio Nuevo to develop the property through a Request For Proposal process.

“They’ve been following Tucson and are excited about the energy and the enthusiasm. They want to participate,” said Swaim, whose firm has been hired as the architect. “I think they see they can make a difference here. You can’t have the same impact if you go to Chicago as you can here in Tucson. They also see that financially and businesswise, they can be successful here in Tucson.”

The company is looking at building a boutique hotel with retail and residential, including what it calls a “festival alley” with retail, restaurants and bars. The building itself is expected to be between seven and 13 stories tall. Two local developers, Peach Properties and Dabdoub Investments, are minority partners in the project.

Swaim Associates is just one of many companies that have benefited from the downtown momentum. In addition to the arena, Swaim was the architect of some of the major projects including the AC Marriott, the Doubletree at the TCC and the new Greyhound bus terminal.

“It feels so good to be able to help make an impact on Tucson and who we are,” Phil Swaim said. “We certainly want to envision ourselves as architects that are more than just somebody who you can come to and get a set of blueprints to be able to build a building. We’ll partner with you to really make a difference, step out and try and do something a little bit extraordinary. It’s felt really, really good to be able to help make that difference.”