By Matthew Holloway |
The Goldwater Institute filed a lawsuit against the City of Phoenix seeking to block a proposed sale of downtown city-owned land to Pennrose, LLC. The lawsuit alleges the deal violates the Arizona Constitution’s Gift Clause and a state law governing municipal housing requirements.
The complaint, filed May 26 in Maricopa County Superior Court, challenges the city’s proposed sale of public land located at 1016 North 2nd Street for approximately $1.5 million. The lawsuit alleges the sale price is less than one-third of the property’s fair market value and would benefit a private developer in violation of Article 9, Section 7 of the Arizona Constitution.
According to the complaint, Pennrose proposed what the lawsuit describes as “a blend of LGBTQ+ affirming affordable housing and a tuition-free preschool for under-resourced children,” with the preschool component to be offered by Bezos Academy. The Bezos Academy is a nonprofit organization founded by Jeff Bezos, founder of Amazon.com and owner of The Washington Post.
Court filings describe the property as consisting of three parcels totaling approximately 0.4 acres, or about 17,500 square feet. Goldwater attorneys allege the property was appraised at the direction of the city at approximately $4,812,500 in June 2023.
The complaint states the city issued a Request for Proposals (RFP) in November 2023 seeking proposals for the purchase and development of the property. According to the lawsuit, the RFP set the minimum purchase price at $4,812,500, the property’s appraised value, while allowing proposers to offer a combination of cash payment and other purported public benefits to meet or exceed that amount.
Pennrose submitted a proposal in January 2024 to acquire and develop the property, according to the complaint. Goldwater attorneys allege the developer proposed purchasing the land for approximately $1.5 million and acknowledged, according to the complaint, that the proposed purchase price represented more than a $3.3 million discount below the RFP’s minimum purchase price.
City records show the Phoenix City Council approved Ordinance S-51809 on April 9, 2025, authorizing the sale and redevelopment agreement for the property, and later adopted Ordinance S-52672 on March 4, 2026, approving an amendment to the development agreement with Pennrose modifying the purchase price.
In a statement released June 1, Tony Napolitano, Senior Attorney at the Goldwater Institute, wrote, “Pennrose claims that the development will create public benefits worth more than the massive subsidy. But there’s a major problem: no valuable public benefit is identified, much less required, in the final agreement. In fact, the developer suggests the city should consider Pennrose’s own private gains from the project as public benefits. That theory turns the Arizona Constitution on its head.”
The lawsuit argues the proposed transaction would provide a subsidy to a private developer without the city receiving direct and proportionate consideration in return, as required under the Arizona Constitution’s Gift Clause.
Goldwater also alleges Phoenix imposed an unlawful inclusionary housing requirement on the sale and development of the property. The complaint argues the city violated A.R.S. § 9-461.16, which restricts municipalities from requiring residential units to be designated for sale or lease to particular classes of residents as a condition of development approval.
Napolitano explained, “Pennrose initially proposed building a mixed-use development on the site, which would include low-income housing and a tuition-free preschool provided by a nonprofit. While the inclusion of a private nonprofit would not remedy the Gift Clause deficiency, it’s not even relevant because it was not included in the final terms of the deal.”
“That leaves the sole remaining alleged public benefit Pennrose claims: the residual value of the housing project once the agreement expires,” he continued. “However, the city retains no ownership interest in the property, and taxpayers will never receive any of their money back from the developer. Those assets remain with the private special interest—exactly what the Gift Clause was designed to prevent.”
The lawsuit asks the court to declare that the proposed sale violates the Gift Clause, block the city from completing the transaction or conveying the property, declare the inclusionary housing requirement unlawful, and enjoin the city from enforcing such a requirement as a condition of development approval.
Napolitano summarized Goldwater’s position, stating:
“Simply put, Arizona law does not give way just because city officials find a particular project desirable.
“Public property belongs to the public. When government officials transfer millions of dollars in public value to a private developer, the Arizona Constitution requires a genuine public purpose and a proportionate exchange—not deep discounts justified by speculative or illusory benefits that taxpayers will never see.”
AZ Free News did not locate a public response from the City of Phoenix regarding the lawsuit prior to publication.
Matthew Holloway is a senior reporter for AZ Free News. Follow him on X for his latest stories, or email tips to Matthew@azfreenews.com.
