Divided Council Greenlights Controversial Lease for Villas on Shelby

During a highly debated meeting on April 28, the Sedona City Council voted 5-2 to approve a ground lease for the Villas on Shelby, a proposed 30-unit, three-story apartment complex. Vice Mayor Holli Ploog and Councilman Derek Pfaff voiced their opposition.

The council had initially scheduled the approval for April 22 but postponed it to allow for further review of lease modifications that could increase the city’s purchase costs. City Attorney Kurt Christianson noted that the city had previously sanctioned two leases for the parcel at 2250 Shelby Drive. The original agreements supported Low Income Housing Tax Credit (LIHTC) applications, with stipulations for affordability lasting up to 75 years.

However, concerning changes emerged just weeks before the vote. Christianson revealed that the option to purchase the complex for $100 after 30 years could not be included, and the affordability period was reduced from 75 to 30 years. Furthermore, the revised lease now specified a term of 99 years instead of the initially proposed 75.

The new lease terms will allow the city to buy the complex at market value after 15 years while retaining a $2.25 million loan with an interest rate of 5.83%. In total, approximately $20 million in external funding will back the project, including a $5 million loan from the Arizona Department of Housing and $8 million in tax-exempt bonds.

The city council discussed waiving $18,924.26 in review fees along with $312,245.41 in development impact fees, which would raise the city’s total financial contribution to $2,581,169.71. Developer Matt Shoemacher indicated that the project’s cost had escalated from $14 million to an estimated $24,471,169.71, translating to $815,706 per unit.

“We plan to close and break ground in two weeks,” Shoemacher announced, with plans to finalize on May 9. He mentioned local desires for home ownership but noted the necessity of the apartment complex as a viable solution.

Opposition from council members remained strong. Pfaff expressed concerns over deteriorating terms that no longer benefited the city effectively. Councilman Pete Furman advocated for additional time to consult independent advisors, while Councilwoman Kathy Kinsella warned of potential future financial obligations stemming from the altered deal.

Despite these concerns, Shoemacher countered, stating that any further delays could threaten the project’s viability. “We’ve had conversations with dozens of experts who won’t convey different information,” he asserted.

Mayor Scott Jablow voiced frustration over the last-minute changes. “We felt like the rug was pulled out from under us this past month,” he stated. Other council members, like Brian Fultz, acknowledged the difficulty of the situation but argued against further consultation that could jeopardize the timeline.

After extensive deliberation, the council reaffirmed their decision with a vote of 5-2 in favor of the lease and loan agreement. A sense of dissatisfaction lingered among those who opposed the terms, though the project is set to move forward.