Mesa selects Soul Trust Main to develop Grid downtown project after original developer bankruptcy
MESA, ARIZONA — April 3, 2025

Mesa selects Soul Trust Main to develop Grid downtown project after original developer bankruptcy

Study session covered major downtown development project (Grid) bankruptcy restructuring with new developer selection, rezoning controversy for 66-unit apartment project with for-sale/rental dispute, and city budget crisis requiring 2% departmental cuts to address $188M+ revenue losses.

Soul Trust Main to Develop Grid After Bankruptcy; City Budget Faces $200M Crisis and Mandatory Departmental Cuts

On April 3, Mesa's City Council study session approved moving forward with Soul Trust Main as the new developer for the Grid downtown project—a 3-acre city-owned property that has been in limbo since the original developer's bankruptcy filing on March 30, 2024. In the same session, city financial staff presented a proposed fiscal year 2025–2026 budget that reveals an existential challenge: a $188.5 million ongoing loss of residential rental tax revenue combined with a $23 million annual wage-benchmarking obligation has forced the city to demand a net 2 percent reduction across departmental budgets and forecast that general-fund reserves will fall below policy targets within five years unless aggressive structural changes take hold.

The meeting underscored Mesa's balancing act: executing a high-profile downtown revival while managing a revenue and cost crisis that city leadership has compared to the 2008 recession, though with different origins. The budget forecast, updated in April, showed marginal improvement over the March projection, but officials stressed that the improvements were fragile and dependent on continued discipline and revenue growth assumptions that may not materialize.

The Grid: From Bankruptcy to Soul Trust Main

Jeff McVey, Manager of Urban Transformation, and Stephanie M, Downtown Transformation Project Manager, walked the council through the Grid's journey from December 2017 development agreement to March 2024 bankruptcy to April 2025 restart.

Timeline

Project Details

Applicant: Soul Trust Main is a real estate investment group operating in Washington and Arizona, with 12 projects under way in Arizona totaling approximately $500 million. In Mesa, Soul Trust developed the Forge Tower (formerly known as Courtyard Towers), which features a prominent public mural and is in lease-up phase. According to city staff, the developer has demonstrated financial depth, reviewed proformas, and already invested in architecture, design, and engineering for phases one and two despite the Memorandum of Understanding not yet being finalized.

The trustee administered a competitive selection from 11 interested developers; four submitted legitimate offers; Soul Trust Main's offer and resolution regarding contractor and subcontractor claims proved most favorable to both the trustee and the city.

Key Speeches

"The trustee reviewed the debts and claims to ensure the legitimacy of the claims. The trustee also investigated financial records to detect fraud or hidden assets. The trustee worked as a liaison between the bank and the city and worked with the city to select the new developer." — Stephanie M, Downtown Transformation Project Manager

"The city will be made whole in that we will get the full fair market appraised value of the land. Now, that does come with a caveat: as part of our agreement, the city is waiving any of the claims that we had against the previous developer and the bankruptcy estate, which totals approximately $800,000." — Jeff McVey, Manager of Urban Transformation

"I would suggest in the future that the council do not do deals with a single developer without an RFP process. I think we fell into a trap with a developer who came to us with an idea that we all fell in love with, but it was there was no evaluation against anybody else or any financing of a developer, and we came to find out pretty quickly that developer was pretty shallow in their financial capacities." — Mayor John Giles

Notable Changes from Original Agreement

Financial Resolution and Claims

The city will wave approximately $800,000 in claims against the previous developer and bankruptcy estate. There remains one unsecured claim of approximately $6 million that was filed directly against the city; city attorney's office has successfully removed most such claims, but this one persists and will require resolution as part of the final settlement and project approval. The city does not expect to pay this claim; it will be resolved through the bankruptcy settlement negotiated by the trustee.

City Council Questions and Reactions

Council Member Spillsbury requested a site plan to clarify the exact parcels involved. McVey committed to providing a detailed map showing the three phases.

Council Member Go Forth asked why the city felt confident the developer would complete all phases if phase one proved successful. McVey cited Soul Trust's proven track record, visible financial capacity, and the fact that the developer has already begun spending on architecture and design for phases one and two—without waiting for final approval.

Council Member Adams asked whether the city would be "made whole" from inception in 2017. McVey acknowledged the city would receive fair market value for the land but noted the waiver of $800,000 in claims and the loss of the contractor/subcontractor claims from the failed original project. He also noted the critical outstanding $6 million claim would need resolution before closure.

John Giles emphasized the value of the competitive bankruptcy process, contrasting it favorably with the original 2017 single-developer approach. He stated: "I think we feel like we've actually benefited from that to get to a solid ground where it's not just the city's recommendation but we've got kind of, if you would, an independent third party who's also been evaluating this."

Outcome & Next Steps

The Memorandum of Understanding will be presented to the City Council on Monday, April 7, for action. Upon council approval, the MOU will be submitted to the bankruptcy court for approval. Full development and lease agreements will then be negotiated and brought back to council for final approval. The developer has indicated it will continue negotiating with Crust Italian Eatery, the planned first-floor restaurant tenant that was party to the original agreement.

Lofts at 121: Rezoning, Density, and the For-Sale Dispute

The second major item consumed considerable council debate and staff presentation time: a proposed rezone of 2.2 acres from RS6 (single-family residential) to RM4 (multifamily) with a planned area development (PAD) overlay to allow a 66-unit apartment building on the northeast corner of Alma School Road and Beverly, directly north of Beverly Park and immediately adjacent to the light-rail transit station.

Project Details

Density Comparison

Evan (Planning staff) presented comparative densities for nearby projects:

February to April Changes (Response to Council Concerns)

In February, the project was scheduled for introduction to council and included 68 units with large contiguous building masses (3 buildings with 15 units in a row on the western side). Council members expressed concerns about massing, density, and overall design.

In the current proposal:

Public Participation and Concerns

Planning & Zoning Board Recommendation

Vote: 5-0 to recommend approval with conditions.

For-Sale vs. Rental Designation: The Core Tension

The transcript reveals a significant and unresolved dispute between the applicant's stated intent and staff's presentation:

Applicant's Position (Tim Bole):

"When the owner—Mr. Ryan—first came to me, he said, 'I want to do a for-sale project.' And I said, 'Okay.' In the past, typically, that's something that we take care of after you get the thing through the process, and then you do your subdivision after. That's just the way we've always done it. When we got to this point, Mary and Evan asked that we do it sooner. So we've engaged a civil engineer to get that process started. The intent is that these would be for sale."

Bole further explained:

"I live about a third of a mile from this project, and since I moved back, I've been very interested in generational neighborhoods. When my grandfather grew up down the street from us, when he got older, there was no place for him to retire to and downsize. And so we had to move several miles away... and suddenly he was in a totally different place. And I heard a presentation—I believe Jen Duff was at it as well—about generational neighborhoods, and I said, 'Well, this is what we need.' We need places in our neighborhood so you can stay in your neighborhood near your neighbors, near your people you go to church with... And the other challenge that we have currently is it's very hard for the upcoming generation to buy anything. Everything is very, very expensive. If you have kids or grandkids in their 20s, it's very, very hard to do that. And so every time I develop something, I design it so that it can be for sale."

Staff's Position (Evan and Mary, Planning):

"This project is not for sale. To do a subdivision plat is going to require a number of new deviations. It would need to come back to council for that. Not to say that the applicant can do that in the future, but as it's being presented, Council, currently this is a multifamily development. Rezoning would be required for a plat because there's going to be new deviations. There's going to be some site changes that would occur as part of that. Again, not that they couldn't do it in the future, but as this is currently presented, it is for rent."

Key Code Issues Cited by Staff:

  1. Underground retention: Applicant noted that underground stormwater retention infrastructure complicates for-sale conversion; city engineer (referenced as "Reese Anderson") has identified a code detail that allows the city engineer to decide whether underground retention is compatible with for-sale projects—this detail has been blocking for-sale conversions for six to seven years.
  2. Utilities cannot cross property lines: In a subdivided (for-sale) project, each lot is a separate property; utilities cannot run across multiple lots without easements and shared infrastructure agreements—far more complex than rental projects.
  3. Setback and deviation requirements change: With 66 individual lots (for-sale) vs. one lot (rental), setback requirements, parking setbacks, and building separations would be recalculated, triggering new deviations and potentially requiring site redesign.

City Attorney and City Manager Guidance:

City Manager Brady offered crucial clarity:

"I think the context why this one's a little bit different than other cases is that [the developer] has said they intend to sell this product. And if that's the intent and the city's trying to facilitate that, there are some additional steps that should occur before you approve the site plan to make sure that happens. So I think that's [what] staff is pointing out: if we want to help facilitate the possibility for it to be for sale, they could subdivide this property, comply with all their zoning code, come back in a month with all those things compliant, and get approval. And they could still rent out all the property. But if they move forward with it the way it is right now, what staff is saying—and I've also seen this in some other circumstances—it's very difficult to switch it the other way."

City Attorney Jim Smith emphasized the city's lack of authority:

"I am totally opposed to making whether we approve or disapprove this based on for-sale or for-rent. This isn't a low-income census tract. We have great neighborhoods and stuff. I thought we are not in a position—especially given the state ordinance law, whatever it is—to start dictating. We have not taken that position before. I think it's not customary to take that position, and making a decision point on that alone."

Council Member Spillsbury concurred:

"I'm in my fifth year on council. I've learned a lot over my first term, and my understanding is that the city doesn't get to dictate whether something is a rental or for sale. We never have. We've never taken that position. I've been told over and over again that we can't take that position. That's not our place to take that position."

However, Council Member Adams expressed openness to for-sale:

"The other challenge that we have currently is it's very hard for the upcoming generation to buy anything. Everything is very, very expensive."

Council Discussion: Safety, Density, and Park Activation

Beverly Park Safety: Jen Duff presented data showing the park's security situation had improved dramatically with activation:

Jen Duff attributed this improvement to park activation (installation of equipment, soccer games, presence of children and families) and proactive police engagement. He stated:

"The more activities in the park, more children, more families, it has become safer. The police department has been more proactive. A lot of these incidents have been directed [in the park] by the police being proactive. So things are getting better."

Jen Duff further noted discussions with Parks and Recreation and the Sustainability Department about additional enhancements (trees, benches, solar lighting, slide and climbing wall repairs) to prepare the park for increased foot traffic from nearby residents.

Council Member Rea: Expressed support for the density as consistent with transit-oriented development and noted that light-rail proximity reduces car dependency. He also observed that the slanted rooflines in the building renderings echoed the architectural character of older homes in the neighborhood—a detail the applicant confirmed was intentional.

Mark Freeman: Expressed strong reservation about density, describing the project as "way over the top" and noting that at 22 units per acre compared to 13–14 units per acre for comparable projects, the design felt constrictive with limited open space.

"I don't see any lot of open space. It's just tight. How much can we put on this space? And that's as much as we can get. I understand I'm not unsympathetic to the fact that when you build something, the numbers have to play out—cost versus income. I get that, and maybe this is what this project requires to make it pencil. But it's not an easy decision, and not an easy thing to evaluate. However, I still feel the density is way over the top."

Jen Duff (Mayor-elect at the time of the study session) countered with a broader vision for downtown vibrancy:

"This is on the back fence of those homes, and south of that, it might sound like it's too much. But myself living on Second Street in the downtown area, I am two blocks from Main Street. I have apartments over my fence. I have three-story, two developments down [the block]. I have a police station almost cater-corner there. I am not afraid of the development. In fact, when I moved to downtown in 2009, the environment was more intimidating than it is today, and it is because of the development and the activity and people engaged. So it's not necessarily bringing development that's bad. In fact, in downtown, it's held downtown. Downtown was not a place that you would, you know, 10, 15 years ago, walk down Main Street confidently. You would find your routes that you felt safe. Today, I think it's much different."

Outcome & Next Steps

Continuance: Council directed the applicant (Tim Bole) and Planning staff to meet and clarify the for-sale vs. rental path forward. John Giles stated:

"I think it'd be best if the applicant and planning can have a conference and massage this a little bit better and come back before our Monday meeting and give us some type of update about the for-sale—if you're going to move towards the for-sale, what's required of that and where you're at today. If you're going to stay for a for-rent product, then it can stand and we'll consider [the decision] on Monday."

The project is scheduled for City Council action on Monday, April 7, 2025. Whether the applicant and staff will propose a postponement for-sale re-design, a forward-looking approval for rental with for-sale conversion available in the future, or a different compromise was not specified at the study session's close.

City Budget Crisis: $200M+ Revenue Loss Requires Phased Departmental Cuts

The final major agenda item—a presentation of the fiscal year 2025–2026 proposed budget and five-year financial forecast—revealed a fiscal stress that city officials compared to recessionary conditions. However, the origin of the crisis differs from past downturns: it stems from a state legislative action eliminating the residential rental tax (a permanent loss of $188.5 million ongoing revenue) and a negotiated public safety wage-benchmarking agreement that mandated wage increases of approximately 15 percent, adding $23 million annually to the general fund.

Key Figures

Revenue Loss:

Proposed Response:

Reserve Implications:

The March forecast showed reserves falling below the city's 8–10 percent policy threshold by fiscal year 2029–2030. The April forecast, updated to reflect departmental reductions and revenue adjustments, shows modest improvement but still projects reserves at approximately 7.8 percent in the final year—below policy.

"We went from 44 [million in reserves] to 60 [million] right, and so as far as the ending reserve in that fifth year, we believe every year for the next couple years the city can do that. Right? As long as it's disciplined and not adding—again, it's that net concept. Right? You can't keep adding more programs and services unless you're cutting back that much, plus what you need to solve this problem." — Brian Rell, OMB Director

Key Speeches

"We lost the residential rental tax, which is roughly about 188 and a half million ongoing. The public safety sworn personnel benchmark—that was a significant impact that just came to us about a month ago—that has an about $23 million per year impact. And then also Fleet maintenance and repairs—those costs have been increasing—along with software and licensing, and building maintenance and custodial services." — Brian Rell, OMB Director

"It's an unusual convergence of these two things. This latest action by the state and this extraordinarily increased inflation in wages, which we have to do—it's just—I'm just wasn't in any forecast before this. Right? Certainly the legislative action, but we entered into an agreement to benchmark every two years. But we had no idea that these wages were going to go up by 15 percent. Not when we entered into that agreement, or we would put a cap on it. But then you would be in a non-competitive state of recruiting [police]." — City Manager Brady

Departmental Reductions

Police Department:

Fire and Medical Department:

Across Departments:

Enhancement Requests Approved by City Manager

Despite austerity pressure, the city manager approved $7.1 million of $10.2 million in departmental enhancement requests:

Requests Not Approved:

Financial Policy and Reserve Targets

The city's financial policies target:

The proposed budget achieves a one-year healthy reserve in fiscal year 2025–2026 (24.5 percent) but projects steady decline to 7.8 percent by fiscal year 2029–2030, falling below the 8–10 percent policy. City financial leadership stressed this is a planning tool and historical performance suggests reserves are overstated in forecasts; however, they also emphasized the need for discipline to avoid compounding the problem.

Utility Fund Challenges

The Utility Fund (water, wastewater, solid waste, gas, and electric) faces separate pressures:

Solid Waste Truck Replacement: The utility fund forecast includes a significant one-time expense for solid waste truck replacement in fiscal years 2027–2028, reflecting aging equipment and manufacturing delays during the COVID period. Sherry (Solid Waste Department) explained that fleet age had extended due to supply-chain disruptions, leading to increased downtime and maintenance costs. The city is exploring alternative service models (e.g., variable collection frequency) to manage operating costs going forward.

Rate Strategy: Utility departments submitted 1.4 million in enhancement requests; $950,000 was approved, including five additional utility locators and a Bartlett/Skiff interconnect facility feasibility study (for water security).

Transportation Budget and Reallocation

Eric (Transportation) presented a $57.6 million fiscal year 2025–2026 operations and maintenance budget for the Transportation Department, primarily funded by:

Major Reallocation: Transportation agreed to fund storm drain maintenance ($2.1 million annually) from HERF instead of the environmental compliance fee, freeing capacity in the environmental fund to support parks and recreation—which had been consuming the majority of that fund for basin maintenance. This allows parks to avoid tapping the general fund for this deferred maintenance.

City Council Questions and Tensions

Council Member Go Forth pressed on the strategic balance: "If we're going to forecast out [five years] and see that we fall below our policy, why would you not change your operations based on that?"

City Manager Brady responded that the forecast is a planning tool to identify emerging challenges and guide disciplinary decision-making over time. The city does not slash services immediately based on a fifth-year projection; instead, it makes incremental adjustments (2 percent this year, again next year, etc.) to give revenues time to grow and efficiencies to materialize.

Council Member Adams noted that the city had previously run up large reserves (34 percent in early COVID) due to federal stimulus and construction booms, and questioned whether the current reserve level is truly sustainable or inflated by one-time events.

City Manager Brady acknowledged that federal ARPA funding and elevated construction-related permitting revenue had boosted reserves, but emphasized the city's conservative posture: "We built in a recession [assumption] every five years. We've been wrong on the economic forecasting side, but over 18 years we've been really good at it. I appreciate that [the reserve] is bigger than it should be, but there are consequences down the road."

Council Member Spillsbury requested that Parks and Recreation clarify its deferred maintenance priorities and that the city provide council a prioritized list of deferred facility and park maintenance projects. This was agreed to be addressed during departmental presentations.

Budget Process Calendar

A new online feedback portal is available at the city's Office of Management and Budget website, allowing residents to submit budget comments and questions; staff will provide periodic logs of comments and responses to council.

Outcome & Next Steps

The proposed fiscal year 2025–2026 budget will be brought back for council action in May following departmental presentations and community input. The city intends to be structurally balanced by fiscal year 2028–2029 through a combination of departmental efficiencies, selective rate increases (utilities), revenue growth assumptions, and careful capital scheduling. City leadership stressed the importance of sustaining discipline to avoid exacerbating the revenue and wage-cost crisis with new commitments.

Beverly Park Safety and Development: Unexpected Alignment

A noteworthy theme emerged during the Lofts at 121 discussion: the potential for density-driven residential development to improve public safety in the adjacent Beverly Park through activation and "eyes on the park." Jen Duff presented data showing that park incidents had fallen from 225 in 2022 to 76 in 2024 and just 5 in early March 2025, following installation of park amenities, community engagement, and police proactivity. He suggested that additional residents from the Lofts at 121 project would further activate the park and deter transient use, a perspective endorsed by Council Member Spillsbury, who indicated Parks and Recreation was exploring further enhancements (trees, benches, solar lighting). This alignment of development interest, public safety, and park revitalization—however contested the density trade-off remains—adds a second-order benefit argument to the project's case.

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