Update: Developer seeks tax break amid outrage over demolition on Circles building

Demolition of Circle Records began on Friday.(Sierra LaDuke/DD)

A crane operator destructs the brick building. (Sarah Jarvis/DD)

A construction worker from Empire Commercial Development LLC stands in front of the rumble. (Sierra LaDuke/DD)

A construction worker hoses down the building. (Sierra LaDuke/DD)

The remnants of Circle Records viewed from the back alley. (Sierra LaDuke/DD)

Circle Records in its final days on Mckinley and Central. (Sarah Jarvis/DD)

The developer behind Circles Records and Tapes building will still pursue a tax break from Phoenix, despite backlash from city officials and historic preservationists after partial demolition began on the building Friday.

In response to the partial demolition, the city of Phoenix has ceased all discussions with the developers, Empire Group LLC, including discussions about the use of a tax break for the proposed 19-story residential development until the city can evaluate the situation.

A statement released from the city said the developers were encouraged to address concerns related to historic preservation and that the city is, “surprised and disappointed that the developer pursued this demolition in the midst of discussion.”

The plans for the partial demolition maintain the façade on the south side of the building, also known as the Stewart Motor building, and a portion of the façade on the west side. These plans reflect those presented Monday during a site tour. Some community members have strongly felt that these portions were not enough preservation.

“The piece that they think is iconic doesn’t make any sense without the rest of it,” said Robert Graham, the principal architect of Motley Design Group. Graham said he is familiar with the building because the company, which has roots in historic preservation, previously did analysis on the building when the city considered buying the building for the Arizona Opera.

He advocated for a taller, skinnier model plan that he designed, and posted on his blog City Views. It was based on his familiarity with the building and he believes it would have preserved more of the building.

RELATED: Preservationists push against using affordable housing for Circle Records building tax break

In a Facebook post, Phoenix Mayor Stanton conveyed his anger in response to the start of demolition in what he felt was the midst of discussion on the building.

The developers have recently been meeting with community groups including the Roosevelt Action Association, the Postwar Architecture Task Force of Greater Phoenix, and Downtown Voices Coalition to hear community input for the project. The developers said in a letter to the Downtown Voices Coalition that they intend to continue working with community groups, but that they did felt they were “no closer to resolving our differences than when we started our conversation” and were moving forward with the demolition.

In response to a prior informational meeting and a site visit, Roosevelt Action Association sent a letter on Wednesday to the developers detailing their thoughts and considerations in relation to the building. Originally the Roosevelt Action Association planned to hold a meeting Monday to discuss concerns and discuss the plans going forward with the building with developers. This meeting will no longer take place.

Larry Lazarus, a land use attorney who represents the developers said the letter included a request to save the entire building, and the developers had always felt it would not be possible to do this.

A portion of the letter from RAA said it is the “overwhelming desire of the neighborhood to see the Circles building preserved in its entirety,” and that a plan which “more fully” preserved the building would probably be met with the support of the Roosevelt community.

RAA president Sherry Rampy said they were open and hoping for a meeting and negotiation with the developers.

“I have been giving this developer the benefit of the doubt,” Rampy said. “At this point I am so amazingly disappointed in the timing that I don’t know I can give any developer any benefit of any doubt.”

Prior to the statement from the city, Lazarus said they still hoped to receive a property tax incentive for the project. He said any preservation of the building would likely be contingent on this tax break. Despite the city’s statement, Lazarus said Saturday following the beginning of the demolition Friday that the company will still pursue the tax break, known as the Government Property Lease Excise Tax (GPLET).

“We hope that the city will recognize there is still a substantial portion of this building to be saved and we want to talk about doing and hopefully we can talk about the GPLET as well,” Lazarus said.

RELATED: Developer: Tax break required for Circle Records and Tapes building preservation

The potential use of the GPLET agreement, for the development has drawn prior community controversy. GPLET replaces traditional property taxes with a much smaller excise tax for up to 25 years.

GPLET agreements are based on a provision in Arizona’s tax code that exempts land owned by governments from property taxes. GPLET allows the city to take over the rights to a piece of land and lease it back to the developer at a significantly reduced rate that replaces the normal property tax. The incentive has been used widely by city government to encourage development downtown, with notable developments like CityScape, the Freeport-McMoran building and Luhrs City Center all having received development agreements of various lengths.

RELATED: GPLET tax incentive draws developers but may also hurt small businesses

Unlike normal property taxes, which are based on a property’s value, GPLET rates are based on the size of a property and the buildings on it. City Council would have to approve the use of the tax incentive on this project and could grant Empire with eight property tax-free years after the project is completed.

A 2014 Downtown Devil report found non-GPLET property owners in downtown had been helping subsidize the discounted tax rates GPLET developments paid because of a change in the formula used to calculate state funding for school districts. According to the revised state law, which passed in 2009, GPLET properties are included in a district’s taxable value, potentially reducing the total state assistance provided for districts with many GPLET properties by a significant amount.

The net effect was that property owners paid for the portion of the district’s budget that GPLET properties were not paying.

Following the partial demolition resistance to a tax break for this project has grown stronger for some community members.

Steve Drieseszun, the vice-chair of Downtown Voices Coalition, said assurances were made at a Downtown Voices Coalition meeting on Saturday that nothing would happen before community conversations happened. He said he personally is against the city giving any tax incentives.

“At this point with the emotions of losing the building that we just toured that had tremendous potential for the community I can’t support a GPLET,” Drieseszun said. “I feel like they were not upfront in their conversations and to reward that behavior would be wrong.”

Tim Eigo, the chair of the Downtown Voices Coalition Steering Committee agreed and said that while there may have been people requesting that the full building be saved, he said the majority of the community simply expected that more of the building would be saved.

“I don’t think that they deserve a GPLET for destroying a historic building and I think that would be a very dangerous precedent to set to say that that is okay. I’m hoping the city agrees,” Eigo said.

Eigo said he feels the developer did not see the community outreach as a dialogue. He also encouraged neighbors to stay engaged in the process. Many historic preservationists also said they feel that their time for communication about what the development could have looked like in terms of preservation was cut off.

“I think the conversation about what to do with that property was still in its infancy, but the reaction by Empire Group seems a little premature in the process in my opinion,” said Alison King, who is a part of Modern Phoenix and the Postwar Architecture Taskforce. “I think this is a real wake up call for the city of Phoenix about ways that we need to restructure policy to protect the city we love.”

King said she is not sure that the building will still qualify for historic preservation. According to King, there is a term in the preservation community called ‘facadomy,’ where the front portion of a building remains but the back portion is removed as a concession to preservation, but this often means properties will not qualify for any historic preservation lists. The Circles building was identified in 2012 by the Postwar Architecture Task Force of Greater Phoenix as one of 25 properties they felt were best representative to qualify for historic preservation but were not protected. The building was never officially protected, and King says that the partial demolition will likely render the it ineligible for the list.

“This is a wakeup call to owners on our top 25 list, that they realize how quickly and how wantonly destruction can be implemented on a building,” King said.

Editor’s note: This article has been updated from a previous version to reflect developments in the story. Government Property Lease Excise Tax agreements are a complex topic that the Downtown Devil broke down extensively in a previous report. If you’d like to learn more about GPLET you can read the report here.

Contact the reporter at Kara.Carlson@asu.edu.