Plans to auction the first 3,000 acres of a massive 12,000-acre master planned development on state-owned land on Tucson’s southeast side have fallen victim to the current real estate market.

Westcor and the Arizona State Land Department say they’ve mutually agreed to suspend planning on the land bordering Davis-Monthan Air Force Base, Rita Ranch, the University of Arizona Science and Technology Park, Rancho Del Lago, Rocking K. Ranch, the Union Pacific Railroad and extending along both sides of Interstate 10 northwest and southeast from Houghton Road.

In January, when the state Land Department announced its agreement to have Westcor develop a master plan for the land, the hope was to be able to hold the first auction in January 2009. The idea is that in about 40 years, when the area is fully developed, it could acommodate as many as 250,000 people.

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Despite the suspension, Westcor still holds the urban planning permit for the land. “There is a contract between the two of us and there has been no expression on Westcor’s part to change that,” said Jamie Hogue, deputy commissioner of the state Land Department.

Mitch Stallard, vice president of development for Westcor, emphasized his company has not withdrawn from the project.

“In light of the current climate in the real estate market, it didn’t make sense to continue expending money on the project, not knowing if there would be anyone there when it went to auction,” said Hogue.

Stallard said the joint decision by Westcor and the state Land Department was made the week before Thanksgiving. “Due to the current financial and economic conditions, we agreed it was a prudent business decision to pause and reconsider what actions are appropriate for the next phases of development.”

Both Hogue and Stallard said planning had come to a natural stopping point. Westcor has completed the first phase of its research analyzing the existing conditions of the 12,000 acres, including preliminary infrastructure and environmental assessments and an economic study.

The second phase would have involved identifying a particular portion of the area for conceptual planning in preparation for the auction.

The state’s contract with Westcor was for $3 million in planning as part of the first phase, but Hogue said she knows “Westcor has spent more than that.”

That research now belongs to the state Land Department.

Neither Hogue nor Stallard could guess when the planning process on the land might resume, saying it was entirely dependent on the real estate economy.

Hogue said there are other factors that could come into play, not the least of which is that the state Land Department is facing staffing reductions as a result of state budget cuts “which reduces our abilities to recharge projects such as this.”

Stallard says Westcor will continue to maintain its office in Tucson and will continue working on a shopping center project, the Shops at Tangerine at Interstate 10 and Tangerine Road in Marana. The 40-year-old company started out as a shopping center developer. In 2004, it opened La Encantada at Skyline Drive and Campbell Avenue in the Catalina Foothills.    

By law, the state Land Department must sell or lease state trust lands for their highest and best appraised use at public auctions. The money raised from selling the land goes to support the state’s public schools. Since the trust was established in 1910 as part of Arizona’s process to statehood, more than $2 billion has been put into schools’ permanent fund.

In recent years, much of that money has come from record real estate prices. For now, Hogue says the Land Department is dealing with smaller rights-of-way sales and open space lands.

“You’re not going to see any record auction prices anytime in the next year,” Hogue said.

Contact reporter David Hatfield at dhatfield@azbiz.com or (520) 295-4237.