A state land auction near some of the most lucrative residential real estate in the region opened Wednesday with the lowest possible legal price and only four bidders.
When the gavel came down a little more than an hour later, two homebuilders had pushed the purchase price of the southeast Valley land to more than three times the appraised value of $68 million.
Texas-based D.R. Horton cast the winning bid of $245.5 million for the tract in an area known as the Superstition Vistas. Located just east of the Maricopa County line, the Vistas is a 270-square-mile parcel bigger than Mesa, Gilbert, Tempe and most of Chandler combined.
Developers who bid on the land said it was worth every penny, and then some.
"It worked out to the state's benefit," said Dave Garcia, vice president of land acquisition for Shea Homes. "You have to let the market dictate the real value."
Several times on Wednesday it seemed as if Garcia might secure the land for Shea as he quietly raised a numbered paddle and countered bids from Horton: $185 million ... $201 million ... $220 million ... $245 million.
"We ran the accounts and looked at our numbers," Garcia said. "We estimated our costs. That was our limit."
The opening bid set by the Arizona State Land Department on the 2,783-acre parcel was about $24,433 an acre.
The initial $68 million valuation, plus an extensive list of restrictions that prevented all but a handful of deep-pocketed developers from participating in the auction, led some homebuilders and lawmakers to accuse the state of rigging the auction.
They said the state appeared to tailor the sale for Brookfield Residential Properties Inc., a publicly traded behemoth worth about $4.5 billion. Brookfield was the applicant for the land auction and had worked for years with state officials to structure the deal's unique financing terms.
More is at stake than just the sale of prime undeveloped real estate. Proceeds from the sale of state land are designated to benefit public schools. Officials with the Goldwater Institute, a conservative public policy watchdog group, said schools risked getting hundreds of millions of dollars less than they could in a less restrictive auction.
Brookfield did not participate in Wednesday's auction and was not one of the qualified bidders. At least on paper.
Brookfield representatives, however, attended the auction, which was held at the Pinal County Planning and Development Offices. They sat alongside D.R. Horton officials as the bids were cast, according to Garcia and other developers who were there.
"I don't know for a fact that they have a partnership," Garcia said. "But they were sitting next to each other."
Officially, four bidders met the auction qualifications: D.R. Horton; Shea; Stone Hill Land Partners, LLC; and Gilbert-based Blandford Homes, using the name Superstition Vista 2783, LLC.
But state officials on Wednesday did not disclose the paperwork each bidder provided to ensure it met the financial and development qualifications. The paperwork could indicate any separate agreements that might exist between participating companies.
The northern boundary of the Superstition Vistas lies at Elliot and Meridian roads in Pinal County. It is about a mile east of the enormously popular — and profitable — Eastmark community in Mesa.
Eastmark is jointly owned and developed by DMB Associates Inc. and Brookfield.
State Land Commissioner Lisa Atkins did not comment Wednesday on the auction results. She has denied creating the auction for Brookfield's benefit.
D.R. Horton started in 1978 and in 2002 became the nation's largest homebuilder, selling more houses each year than any other company. The publicly traded builder ranked 183rd in the 2020 list of Fortune 500 companies, with about $17.5 billion in annual revenue.
Patrick Brown, Horton's vice president of land acquisition, said Wednesday he was not authorized to talk about the auction or Horton's vision for the land. As he signed paperwork after the auction, he joked with associates who had guessed the land might sell for about $100 million.
"Whoever had 101?" Brown said.
Auction terms were strict, limiting
An investigation by The Arizona Republic in October laid out the terms of the auction.
Qualifiers must have $40 million of unrestricted cash and a net worth of at least $400 million. They also must have a track record of developing a master-planned community of at least 1,000 acres with 2,000 homes and $50 million of infrastructure costs, which typically refers to installing roads, sewers and water, and utilities.
Recent closings show land in and around Eastmark, with its easy access to freeways, community amenities and shopping districts, is selling for $250,000 to $300,000 per acre.
At $245.5 million, the per-acre price Horton paid for the undeveloped land is about $88,000.
Developers and lawmakers critical of the deal said the state could have gotten tens of millions of dollars more by auctioning off the land in four parcels and allowing more bidders.
Brent Hickey, a principal at Freedom Communities in Chandler, estimated the land could fetch at least $100,000 per acre. Hickey projected the state could raise $630 million for schools in six years.
State land officials dispute Hickey's calculations. They say selling off the land in smaller parcels defeats the goal of using the land to transform Apache Junction from a rural hodgepodge of mobile homes and strip malls to sprawling master-planned subdivisions.
Atkins has called the land a gateway to new development in Apache Junction, which under the state's plan will annex the developed parcels and provide water and sewer to the homes that are built.
As the winning bidder, Horton will be required to prepare sewer and water connections for the future sale of another 5,000 acres of state land in the Superstition Vistas.
To ensure Horton does not default, the Land Department will finance 90% of the purchase price. The company has 25 years to pay off the loan and will not be required to make any loan payments in the first eight years.
Horton will be required to put 10% down, or $24.5 million, within 30 days of the auction's close. In addition to the loan payments, the state will get 50% of profits made when land is sold to individual developers. (The state will not profit on individual home sales.) The winning developer must complete the build-out within 25 years.
4 bidders start; 1 winner emerges
Developers cast 118 bids during the auction. It started out as a four-way race as the price increased in $1 million increments.
Blandford officials bowed out at $153 million. They were followed a few minutes later by Stone Hill, which made its final offer at $176 million.