Development Increases
At Indian Reservations

American Indian reservations are getting an economic boost from an unlikely source: sprawl.

With land hard to come by in Scottsdale, Ariz., office and retail real-estate developers have leased about 700 acres in the past year from tribal members of the Salt River Pima-Maricopa Indian Community near Scottsdale, who own land near a new six-lane freeway extension that bisects the community.

"We now have legitimate developers who see it's worth their time and money to build projects here," says Hans Klose, the community's development director.

Everyone Benefits

American Indian reservations, whose main commercial activity has been casino and related operations, are beginning to see interest in other types of development and business activity from outside. Developers, who are having an increasingly difficult time finding land on which to build, are pursuing sites on tribal land, primarily in the West, for new office, retail and hotel projects. They find that available land is abundant and the tax rates generally are lower as tribal leaders seek to encourage economic development on their reservations. What's more, quick building approval processes on the reservations help counter the sometimes lengthy process of signing land-lease deals.

Tribal governments, looking to build and diversify their economies, are welcoming developers with open arms. For many tribes, the trend represents a growing source of tax revenue outside the casino businesses. And it provides commercial projects where tribal members can rent space for their business and attracts businesses that provide more employment options for members. Landowners -- many of whom are elderly and don't have pension funds -- receive income from the leases.

A growing group of tribal governments, many of them well-seeded with revenue from casino operations, have added roads and other infrastructure and beefed up services. Tribes also have modified and expanded their political and legal systems so they function more like municipal governments, making the reservations more attractive to businesses and developers.

To be sure, some tribal members would much rather see development projects built by home-grown, Indian-owned operations. Still, many home-grown operations don't have the wherewithal to tackle large projects. What's more, many tribal members who own land on reservations prefer to lease to outside developers because "they are paying more than ever before" due to competition for land in the area, says Herbert Chiago, who owns land in the Pima-Maricopa community and serves as a spokesman for several landowners.

Outlets and Offices

Chelsea Property Group Inc. is building an outlet shopping center next to a casino on the Tulalip Tribes reservation, about 35 miles north of Seattle, where Wal-Mart Stores Inc. and Home Depot Inc. already have opened stores in the past few years. The Tulalip reservation "is close enough to Seattle for an easy drive" and is visible from the freeway says a spokeswoman for the Roseland, N.J., company.

Alter Group, a Chicago development firm, in a joint venture with Apex Park at Pima LLC, a Scottsdale investment group, is about to start construction of a two-million-square-foot office and retail development on 187 acres of land leased from some 200 families in the 53,600-acre Pima-Maricopa community. Construction of the $400 million project, called Talking Stick, is expected to start in a few months, says Kurt Rosene, Alter's senior vice president of national development. (A talking stick is a wooden branch that's carved to designate significant events in a year.) Alter also is pursuing other reservation land sites in Arizona and Southern California.

Ernest Noia, a real-estate attorney who for the past few decades has helped Indian landowners lease out their land to developers and businesses, has become a developer himself. He's leasing nearly 300 acres from members of the Agua Caliente Band of Cahuilla Indians in Palm Springs, Calif. -- a growing desert city where most of the available land is reservation land -- to build the Indian Oasis Resort, which includes a hotel, golf course, retail, and office and industrial space.

Tribes "have long had certain tax and regulatory advantages, but those alone have been inadequate to entice outside investment," says Joe Kalt, a co-director the Harvard Project on American Indian Economic Development. "What's happening now is the tribes that are succeeding in their economic-development efforts are revising their political and legal institutions."

Many tribes and tribal members have gotten the authority to approve land leases of 50 years or more. Many also have adopted planning laws of nearby cities or counties and are changing their legal systems to allow disputes to go to arbitration or the federal courts, making them virtually "no different than working with any other municipality," says Mr. Rosene.

The land that makes up the 331 reservations in the U.S. is owned by 567 federally recognized tribes or individual American Indians. The 55 million acres held in trust by the U.S. government for Indian tribes, families or individuals for the most part cannot be sold to nontribal entities. That means outside companies must lease the land on which they construct their projects from landowners.

Nationwide, leases on tribal land and land owned by tribal members generated about $42 million in 2003, up from nearly $28 million in 2000, according to the Bureau of Indian Affairs. The tribes in Arizona alone generated nearly $21 million in income from leases in 2003.

'Sizable Sum'

Tribal landowners welcome that income. Richard E. Old Horse, a Laughlin, Nev.-based lawyer who advises many tribal landowners in the Southwest on lease agreements, says land within the Pima-Maricopa community generates about $1.50 per square foot annually in rent. Robb Horlacher, a principal at Apex Park, says comparable land in nearby Scottsdale is difficult if not impossible to find to lease or buy. But if you can find it, it would sell for at least $10 a square foot, he says.

Still, the rents are "quite a sizable sum for these families," says Mr. Chiago, who leased some of his land to the Talking Stick project developers. He also has a small development firm that builds primarily homes for low-income families. While he'd like to do bigger projects like Talking Stick, he says his firm "isn't big enough to do projects of that size."

Nearby, Opus West Corp., the Phoenix-based unit of developer Opus Group of Cos., has been particularly aggressive leasing up land in the Pima-Maricopa community. The company broke ground earlier this summer on Calendar Stick, a 250,000-square-foot office park on nearly 24 acres of land leased from tribal members. (A calendar stick is another name for a talking stick.)

Opus West also has plans to begin construction later this year on a 1.5-million-square-foot office park called Pima Center on 209 acres leased from more than 200 tribal landowners.

Negotiating the leases for the land for the Calendar Stick and Pima Center each took several years because of the number of landowners involved and because all the agreements had to pass muster with the tribal government and the Bureau of Indian Affairs, says Keith Earnest, Opus West's vice president of real-estate development. But it was worth it, he says, particularly since reservation land is just about the only land left in the Scottsdale area. He says the cost of leasing the land "is much more attractive" than buying land. That, in turn, allows Opus West to offer tenants lower rents than most other office landlords in the area.

Rural/Metro Corp., which provides ambulance, fire and other safety services, has leased a 46,000-square-foot building at Calendar Stick, where it plans to relocate its Scottsdale headquarters next spring. The firm was attracted by the proximity to its existing location and because it will see a 20% savings on its leasing costs. That's "a significant savings," says a company spokeswoman.

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