A vacant industrial building near McDowell Road and 27th Avenue in Phoenix just changed hands for $22.75 million, and the buyer, AI infrastructure company 5C AI, didn't have to fully comply with the city's newest data center zoning rules to close the deal. The 113,414-square-foot warehouse, sold by Hanson Capital Group, is slated to become a data center — but only after 5C AI found a legal workaround to a Phoenix ordinance built specifically to rein in projects like this one.
The sale, reported September 2 by ABC15 Arizona, marks a big markup from what Hanson Capital Group paid for the same building back in 2021: $9.5 million. The property sits at the northwest corner of McDowell Road and 27th Avenue, corresponding to Assessor's Parcel Numbers 108-15-002D and 108-15-002B, according to a formal agenda from the City of Phoenix. On July 1, the Phoenix City Council authorized a binding waiver of enforcement under Ordinance G-7396 for the site, after 5C AI submitted a claim under Arizona's Private Property Rights Protection Act, commonly known as Proposition 207, arguing the city's new zoning rules had diminished the property's fair market value.
How a 2006 Ballot Measure Became 5C's Escape Hatch
Ordinance G-7396, adopted by the Phoenix City Council on July 2, 2025, updated the city's municipal zoning code to require special permits and strict performance standards for data centers built in commercial and industrial districts, according to AZBEX. Those standards include noise limits of 55 decibels during the day and 45 decibels at night within 300 feet of residential zones. Before the ordinance passed, Phoenix had no explicit zoning guidelines defining or regulating data centers at all.
Proposition 207, the voter-approved measure from 2006, requires municipalities to compensate property owners if new land-use regulations reduce their property values — or, as in 5C AI's case, grant a waiver instead. That mechanism, codified at A.R.S. § 12-1134, gave 5C AI a path around the very rules Phoenix had designed to govern facilities like the one now planned for the McDowell Road site.
5C AI Isn't Alone in Using the Loophole
5C AI's warehouse is far from an isolated case. As of March 2026, at least 11 property owners and developers had filed Prop 207 notifications against the City of Phoenix, arguing the 2025 data center ordinance reduced land values for projects that predated the rules, per the same AZBEX report. City records reviewed for this story show the McDowell Road parcel is one of those 11 sites where developers used Prop 207 claims to secure exemptions or settlements after Phoenix tightened its zoning code.
Not every developer has taken that route. In March, developer Vintage Partners abandoned plans for a data center on 63 acres in Phoenix's Laveen area after the city's noise updates and utility cost restructuring, according to Bisnow. Vintage Partners dropped its own Prop 207 claim after the city requested a project modification, opting instead to redevelop the parcel into a 1,000-unit residential and commercial mixed-use project.
Backed by Big Capital, Building a 20-Megawatt Facility
5C AI has deep pockets behind it. In April 2025, Canadian AI cloud platform Hypertec Cloud acquired 5C Data Centers to form 5C Group, which went on to secure $835 million in combined equity and debt financing led by Brookfield Asset Management and Deutsche Bank that July, according to a PR Newswire release announcing the deal. The combined company built a North American AI digital infrastructure portfolio targeting more than two gigawatts of total compute capacity. As of September 2026, industry project tracking categorized 5C AI's McDowell Road facility as a 20-megawatt enterprise-scale compute deployment, according to Baxtel — modest next to the gigawatt-scale hyperscale campuses rising in Phoenix's outlying suburbs, but still a substantial addition to the metro's server footprint.
State Officials Push Back on Phoenix's Data Center Boom
The McDowell Road deal lands amid growing statewide friction over the pace of data center development. On September 1, Arizona Attorney General Kris Mayes issued a public statement calling for a statewide pause on approving new data centers, citing intense power and water demands along with rising residential electric bills tied to utility infrastructure expansions, Bisnow reported. Arizona was home to 160 data centers as of that month, with 149 located within the city of Phoenix alone.
The state has already moved on the tax front. In June, Arizona enacted a three-year pause on granting new tax incentives and exemptions under the Computer Data Center Program, suspending transaction privilege tax exemptions for new server farm builds statewide, per the same Bisnow account. That program, administered by the Arizona Commerce Authority, had historically offered tax breaks to qualifying facility owners and their colocated tenants.
Neighborhood Heat and a Booming Local Economy
The regulatory pushback traces back in part to research on how these facilities affect the neighborhoods around them. An Arizona State University study published in 2026 found that operating data centers in Phoenix elevated average downwind nighttime temperatures in surrounding neighborhoods by 1.3 to 1.6 degrees Fahrenheit due to mechanical waste heat exhaust, according to Hoodline's earlier coverage of the research, which examined temperature variations across four Phoenix-area server facilities.
Yet the industry's economic footprint keeps growing. Metropolitan Phoenix ranked among North America's top two data center markets in 2026, with the local data center boom contributing more than $11 billion to Arizona's gross domestic product, according to AZBEX. Industry projections for the year estimated a multi-fold increase in planned Valley compute capacity to support artificial intelligence workloads — a boom that continues to collide with city noise limits, state tax policy, and neighborhood concerns over heat, power, and water.
