Mesa Council OKs hotel purchase in split vote

In a rare 4-3 split vote, the Mesa City Council approved an agreement to buy the 70-room Grand Inn Hotel on Main Street and Power Road for $7.4 million for use as an emergency homeless shelter.

The city wants the hotel to house its Off the Streets emergency shelter program, currently located in leased hotel rooms at the Windemere Hotel, a mile-and-a-half to the west on Main.

Officials hope moving from leased to city-owned space would create long-term stability for what they say is a successful program that has helped cushion the blow to Mesa from a national surge in homelessness and prevented the emergence of large tent encampments like those seen in Phoenix.

With the purchase approved, the city will begin community engagement, property due diligence and plan site improvements, staff told the council.

This first step toward buying the Grand Inn was not unanimous on council, with the most vocal opponent of the move wondering whether the city was overpaying for the 1.3 acres with a building constructed in 1973 and added to in 1985.

The Grand Inn last sold in 2021 for $3.75 million to Phoenix-based entity Sunstay Bridge LLC, about half of the approved sale price.

Mesa plans to pay for the hotel using federal America Rescue Plan Act dollars, with the possibility that Maricopa County would eventually contribute $4 million, staff told council members.

The ARPA dollars are part of the reason proponents found the hotel purchase so enticing.

City Manager Chris Brady called the federal dollars a “generational” opportunity for investments in social service facilities.

“We’ve never had the federal government drop $105 million into our bank account literally overnight,” he said.

Currently, cities need to obligate ARPA dollars by the end of 2024 and spend them by the end of 2026 or risk losing them.

But national news outlets are reporting that “clawbacks” of unspent ARPA funds are part of the current debt ceiling negotiations in the U.S. Congress, which is spooking some city officials and may add a sense of urgency to buy the hotel.

Speaking to downtown leaders on an unrelated topic two weeks ago, Downtown Transformation Manager Jeff McVay told the gathering “a lot of things are approved, but the funds aren’t allocated,” meaning they might be susceptible to clawbacks.

Deputy City Manager Natalie Lewis said the final sale is contingent on council approval of a Council Use Permit to change the use from hotel to social services facility, possibly in the fall.

The city launched Off the Streets in 2020 at the 85-room Windemere Hotel, which was Mesa’s first foray into a city-operated emergency shelter. 

The city contracts with nonprofit Community Bridges, Inc. to operate the shelter and provide social services, at a cost of about $1.2 million per year.

Stays at Off the Streets are the beginning step in a longer Housing Path to Recovery program, which includes rent assistance, workforce development and case management.

The city reports the average stay in the OTS rooms is 67 days, and 74% of people who enter the shelter continue on to the next step on a housing plan; 26% return to homelessness.

According to a city presentation, 1,544 people have been served at the shelter to date.

City officials say the relationship with the owners of the Windemere is currently strong, but Lewis said that under the terms of its current deal with Windemere, either the hotel or the city could end the lease with just 90-day notice.

Lewis told council that since the city considers Off the Streets to be a success, she and others want to have a more secure location for the program.

In the discussion before the vote, District 6 Council member Scott Somers said while he supported the concept of buying a shelter to address homelessness, the price negotiated for the Grand Inn was “way too much.”

He noted that the city’s appraisal of the property came in at $6.4 million – a million less than the negotiated price – and an unofficial appraisal he commissioned by “someone who does commercial real estate” arrived at a $5.2 million figure.

He claimed the value of the property based on the revenue generated by the hotel rooms would be even less – $4.3 million.

“We’re paying above-market rate on what arguably is the height of the market, with even the appraisal mentioning in his economic report that we’re likely to go into recession next year,” he said.

He suggested the sale price is inflated because it is known that the city is the buyer and ARPA funds are available to pay the tab. 

In the city’s appraisal, he pointed out, all the comparable sales were hotels converted to shelters by cities – likely funded with federal assistance.

“Even though they’re federal dollars, I think we should be cautious with how we spend it. It’s still government money. It’s still taxpayers’ dollars,” Somers said.

Brady defended the Grand Inn’s price tag.

He said the city followed the appraisal process mandated for using federal dollars, and the seller originally asked for $8.5 million. The city negotiated down from that and met them in the middle between the appraisal and the initial asking.

“We negotiate all the time,” Brady said. “There are rarely times when we will be at the appraised value. Most sellers want more than that.”

Mayor John Giles and several council members spoke in favor of moving forward before the vote.

Giles said having emergency shelter available is legally required to enforce urban camping laws, which helps the city nudge people into shelter or, if they must, issue a citation and bring them before a community court.

He referenced Martin vs. Boise, a 2018 decision that ruled it unconstitutional to cite people for sleeping on public property if alternative shelter is not available.

Giles acknowledged the Grand Inn sellers would “make money on their real estate,” but he said that was because they bought the hotel at an opportune moment, during the pandemic.

“We’re not overpaying,” he told the Tribune.

He also said the availability of federal dollars was a reason to proceed.

“I think it’s fortuitous that we have these ARPA funds,” he said. “Years from now, we will look back with gratitude … that we were able to take a step forward in providing these facilities.”

Somers ultimately voted no and was joined by District 5 Councilwoman Alicia Goforth and District 1 Councilman Mark Freeman, who each had different reasons for questioning the purchase.

Goforth told the Tribune after the vote, “Our strategic plan to address homelessness and its root causes needs to be flexible – as the problem changes. Purchasing a hotel locks us into this approach.”

Freeman had signaled support for a city-owned shelter in earlier council discussions, but he ultimately thought it would be better to stick with using leased rooms.

“As I looked more into it, I’m just really comfortable leaving it the way it is,” he said. “Leasing the Windemere Hotel, I find that effective.”

He called buying the hotel a “slippery slope” that could lead to more General Fund expenditures in the future, even if the feds pick up the tab for the purchase price.

He added that he would like to see other East Valley cities step up with facilities for homeless people.

“Mesa can’t do this by themselves.”