Pulte Homes, Toll Brothers, and D.R. Horton have exited Phoenix's Desert Ridge project, giving back approximately 689 acres of land purchased from the Arizona State Land Department for $82.5 million.

Desert Ridge is a 5,700-acre mixed-use master planned community in the Phoenix's Northeast Valley and was to be home to more than 20,000 residential units, which took 20 years to plan, according to Arizona's deputy state land commissioner Jamie Hogue.

Hogue said all entities were financed through the ArizonaState Land Department "so no bank credit is involved in the default of the State Trust lands back to the State." She did say that it is possible that developers had obtained funding from banks and others for their projects, "but they could not have used the State Trust land as collateral for those funds."

Calls to D.R. Horton and Toll Brothers were not returned. Pulte representative Courtney Rice said that since Pulte is involved in a joint venture with Toll, the company cannot comment without prior approval from Toll Brothers, which she had not received as of press time.

The companies have made principal payments totaling $62.2 million on the properties purchased from the state, but have recently defaulted.

"Statutes bind our hands when it comes to working with [the builders]," Hogue said.

The developers were given a couple of months to figure out what they would do with the properties, Hogue said. After some extensions, the companies turned over the land with Horton (holding 189 acres) notifying the Land Department on Sept. 29, and Toll and Pulte (holding 502 acres in a joint venture, and Toll holding an additional 81 acres) being issued a default notice on Oct. 20 for both properties.

Two other private developers, Gray Development and Rightpath Development, also pulled out of the area, giving back 310 acres, which were purchased for $46.9 million, to the state.

"These developers already had a substantial amount [invested in this project], but this is a testament to the condition of the market," said Steven LaTerra, home builder specialist with Land Advisors Organization.

While the financing situation may be uncommon in some areas, it is common practice Arizona, according to Hogue.

"The process the State Land Department used to plan this land is unique, but the method used to sell/lease the parcels is the same as that used for all other Trust lands," she said. "The planning of Desert Ridge was one of the first times that the State Land Department took a very large planning area through zoning and entitlements itself."

The timing is what LaTerra believes is the key issue as to why the companies defaulted, adding that the Phoenix market is in the "worse of the worst" as far as development conditions. Not to mention that it is extremely difficult for builders to get loans, and the state funding does not cover construction loans.

LaTerra also pointed out that while housing needs to be stabilized in the Phoenix market, job growth is continuing, and there will be a need for housing in the future.

Hogue said the land that has been returned will be sold at auction when the timing is right.

"The State Land Department brings parcels to auction based on market demand," she said. "Considering the location of these parcels, it is very likely that the department would consider bringing them back to market once the economy has recovered and the demand is there."

Learn more about markets featured in this article: Phoenix, AZ.