Taxpayer watchdog the Goldwater Institute has taken the City of Phoenix to court, aiming to stop a downtown land sale that would clear the way for an affordable housing project. At the heart of the fight: a plan to sell a city-owned parcel to out-of-state developer Pennrose for roughly $1.5 million, even though it was appraised in 2023 at about $4.8 million. Plaintiffs argue that locking in at least 20% of the building’s units as affordable for 40 years does not save the deal from being an unconstitutional gift of public land.
According to court filings, the site at 1016 N. 2nd Street consists of three parcels totaling roughly 0.4 acres and was appraised at about $4,812,500 in June 2023. Under the city’s Disposition and Redevelopment Agreement, Pennrose would pay $1.5 million for the land. The agreement was recorded with the county on December 11, 2025, and the land would only be conveyed if the developer meets performance requirements, including a 40-year deed restriction on affordable units, according to the Goldwater Institute.
City Sign-Off and Sale Terms
The Phoenix City Council signed off on the basic business terms in April 2025 under Ordinance S-51809 and directed staff to negotiate a Disposition and Redevelopment Agreement with Pennrose, according to the City of Phoenix. The council materials note that the original 2023 request for proposals required any residential project to designate at least 20% of units as affordable or workforce housing. The city also expects the one-time sale proceeds to flow into the Downtown Community Reinvestment Fund, according to the same report.
Goldwater’s legal team calls the arrangement an unlawful subsidy. Senior attorney Tony Napolitano argued that “The city is picking one specific developer,” contending the structure of the deal hands private benefits to Pennrose at taxpayer expense, as reported by KJZZ. A city spokesman did not dispute the numbers cited by Goldwater, according to the station.
What Pennrose Wants to Build
City documents lay out Pennrose’s proposal: a five-story, 64-unit building with roughly 4,650 square feet of commercial space on the ground floor and 32 parking stalls on-site. All residential units would be restricted to households at or below 60% of area median income. The project is framed as about a $20 million capital investment and was the only responsive submission to the city’s 2023 RFP for the site, according to the City of Phoenix.
Pennrose, a national developer known for affordable and mixed-income housing, reports having completed hundreds of projects and more than 27,000 rental units. The company’s portfolio is especially deep on the East Coast, and city records show Pennrose submitted the only responsive proposal for this downtown Phoenix parcel, according to Pennrose and city council materials.
Gift Clause Fight Lands in Court
The lawsuit argues that the deal violates Article IX, Section 7 of the Arizona Constitution, known as the Gift Clause, by transferring valuable public land for what plaintiffs characterize as a grossly disproportionate fraction of its appraised value. The plaintiffs are asking for declaratory and injunctive relief, including an order blocking the city from conveying the property. The case was filed in Maricopa County Superior Court under number CV2026-0217962, according to the Goldwater Institute.
For now, the Disposition and Redevelopment Agreement remains recorded, and the council’s authorization is still on the books. The lawsuit effectively puts the land sale and its 40-year affordability requirements in limbo while lawyers brief the issues. Local officials have not publicly reversed course, as reported by KJZZ, and the complaint was electronically filed in Maricopa County Superior Court on May 26, 2026, according to the Goldwater Institute.
