A combination of private sector investment, better land use planning, and the potential of the modern streetcar has created “horrendous interest” in economic development in Tucson’s urban core.

For the first time in about 20 years, real estate deals and development projects “actually pencil out. That’s really good news,” said Ron Schwabe, CEO of Peach Properties, to about 140 attendees at the Pima County Real Estate Research Council’s fourth quarter forum Nov. 10. “The private sector has stepped up, the street car is a plus, and probably the biggest help was the city finally adopting some programs.”

Schwabe’s company first ventured downtown in the late 1980s. It has redeveloped old buildings in the Toole Avenue warehouse district, the One North Fifth apartments, and the Providence Service Block at 44 E. Broadway.

For the University of Arizona, Schwabe is developing off-campus student housing at 246 E. Broadway.

“Everybody was counting on Rio Nuevo to bring downtown back. It has been a long slog, after years of pain, Rio Nuevo has gotten out of the way,” he said.

To spark private development along the 3.9-mile streetcar route, the city has stepped up its land use planning efforts. Jim Mazzocco, planning administrator for the city, said staff has been directed to have the entire route “ready by 2013 to encourage the type of land use that supports the streetcar, the ridership, the neighborhoods and all the mixed use development.”

It is an extremely challenging balancing act because the route runs through some historic neighborhoods between the UA campus and downtown.

“There are gaps and barriers. Where do you put transit-oriented development and how do you protect historic neighborhoods all at the same time?” he said.

The planning process divides the route into different sections: the university, transition, infill and downtown core. Each has special planning needs and challenges, such as building height and density restrictions.

In the infill district, for example, the very first project faced great resistance from nearby residents in historic neighborhoods. They challenged a high-density student housing development called The District, at 550 N. Fifth Ave.

“The reaction of the West University Neighborhood Association to this project was, they were appalled,” said Mazzocco. “At public hearings, they said the infill district is a bad idea, don’t allow this. They felt the project is not compatible with their neighborhood, they don’t like the height, its looks. They don’t want the students. They could have appealed it but did not.”

Jane McCollum, general manager of the Marshall Foundation, supported the city’s land planning efforts along the streetcar route because it will provide several benefits. Those advantages include land use certainty, reduced planning and development costs, faster plan reviews and construction timelines, more responsible development, and neighborhood stabilization.

“This planning will bring certainty to both the neighborhoods and developers,” she said. “Design is very important. You can’t put a crappy project in where people live and have it be accepted. Instead of accepting crappy projects, we as developers need to hold ourselves and the neighbors to a higher standard. When you do that, you stabilize neighborhoods.”

At the western terminus of the streetcar across Interstate-10, the Gadsden Company is developing 30 acres of mixed use projects. Company partner Adam Weinstein’s perspective on the streetcar and related economic development took a totally different route.

He considers it all to be development-oriented transit.

“Transit gives the ability to get on and off in a routine manner rather than necessarily taking it from destination point A to B,” he said. “Along a streetcar line, the park-once opportunity sets up the land use opportunities. All the wonderful projects we’re seeing from Jane and Ron are setting up the network, that really is the driving force.”

Contact reporter Roger Yohem at ryohem@azbiz.com or (520) 295-4254.

See all this grain? This is what the guys down at Borderlands Brewing Companywill use to brew their first batches of beer, which could be ready by early October.

Myles Stone said yesterday that the only thing between him and brewing that first batch of beer is getting the electricity turned on, which is expected to happen any day now. In the meantime, artist Joe Pagac is working on the sign for the front of the building while overseeing a mural being painted on the back of the building.

This work with Pagac is the beginning of a partnership between the brewery and local artists that I find fascinating. Tucson artists will design the labels and it has been said that there will be many partnerships between Borderlands and Dinnerware Artspace, which is located in the other half of the building at 119 E. Toole Ave.

Stone says he hopes to have a few kegs ready for the Tucson Beer Festival on Oct. 8. He also says work is underway on the “most kick ass beer garden in the Southwest.”

Are you excited? I am.

BONUS CONTENT! Dan Gibson went on the Fook morning show on KFMA to talk about Borderlands and other new local breweries:

http://soundcloud.com/fook-1/new-tucson-breweries

The microbrew craze took off in 1990s, but unlike Grunge Rock and dirty flannel shirts, it’s far from a remnant of that decade. In fact, while overall beer sales have fallen two years running, sales of microbrew products increased by double digits in 2009 and 2010.

“Microbrewers have been fighting for the same 5-percent of the market for 20 years,” said Myles Stone, 27, one-third of Borderlands Brewing Co., which will be Tucson’s newest microbrewery when it opens sometime next month at 119 E. Toole Ave. downtown.

Stone, a third-year medical student, doesn’t have a background in brewing, other than the home brewing he and a partner, Mike Mallozzi, 32, have done. Mallozzi, a microbiologist at the UA, has worked in quality control for Budweiser in Colorado.

Their other partner is Blake Collins, 25, who has worked at a home-brewing supply store.

Microbreweries are one segment of the larger craft brewing industry, which also includes brewpubs, regional craft breweries and contract brewers.

The distinguishing factor in all of these comes down to volume. Microbreweries typically produce less than 15,000 barrels of brew per year. A barrel equals 31 gallons, or about the size of two standard beer kegs.

Stone said Borderlands plans to produce about 500 barrels their first year and double that in the second.

Located just steps away from the Union Pacific tracks in an old produce warehouse, Borderlands will brew and pour at the refurbished building.

Since Arizona allows limited self-distribution, Stone said Borderlands can sell directly to bars and restaurants. That, he said, gives them the ability to fill customers’ orders at a moment’s notice.

That’s key to their business plan, Stone said.

And, he thinks getting their beer into eateries should be relatively easy because Borderlands has no plans to open a restaurant of its own.

“We talked about it for like 10 seconds, and we were like that’s not us,” Stone said.

Probably just as well, he added, the restaurants they’ve spoken with seemed much more receptive to carrying Borderland beer when they learned Stone and company don’t plan to serve food.

In addition, most of their investors advanced relatively small sums, several thousand dollars at most, and live in the area.

“We plan on making dividend payments to investors in about a year,” Stone said.

If industry statistics are any indication, it would seem the investment in a microbrewery is a pretty good bet.

Of the more than 1,700 microbreweries and craft brewers in the U.S. in 2010, only 41 closed, according to the industry group the Brewers Association.

Portland, Ore., is a city that is only slightly larger than Tucson but has more than 40 microbreweries. The entire Portland metro area has roughly 2 million residents.

Even Flagstaff, a city of fewer than 68,000 people, has four breweries, all within walking distance of one another.

For their part, the crew at Borderlands Brewing hopes they have found a recipe for success.

“What we were told early on,” Stone said, “is that breweries don’t fail because of the beer.”

Contact reporter Patrick McNamara at pmcnamar@azbiz.com or (520) 295-4259.

Story By Caitlin Harrington

The Tucson Pima Arts Council awarded its 2011 Small Business Partner Lumie to Peach Properties of Tucson for its support of artists in the community.

“There’s always something vacant, so artists approach us, and we’ve done openings, exhibits, movie sets … a lot of different venues,” says Ron Schwabe, owner of Peach Properties Inc.

Schwabe says he plans to continue to give venues to local artists while also being able to show off his properties to the public.

The UA is moving forward with two proposals that could provide housing for approximately 1,200 students along the Modern Streetcar line by 2013. The projects will expand the University’s presence downtown.

The University of Arizona has selected two development teams as potential partners to build much-needed student housing along the new Modern Streetcar line in downtown Tucson.

Both teams submitted proposals in response to a University RFP for public-private student housing partnerships that was issued last year.

The University hopes to construct housing that would include roughly 1,200 student beds along the streetcar route by 2013.

“This new student housing initiative will further increase the University’s community engagement while providing additional social and economic life to a renewed downtown redevelopment effort,” UA President Robert N. Shelton said.

“The Modern Streetcar serves almost as a campus extension into the downtown area, with students, faculty members and visitors being able to move back and forth within minutes, and without the need for a car and all of the challenges it presents.”

One of the selected proposals was submitted by the Capstone Development Corp. with local developer Jim Campbell and is located on East Congress Street at the North Fourth Avenue underpass.

A portion of the project is proposed to be constructed in conjunction with a city parking garage that is currently under construction.

The other selected proposal was submitted by local company Peach Properties and is just south of the Capstone project, at Fourth Avenue and East Broadway Boulevard.

Both of the projects likely would incorporate new retail facilities and benefit from other nearby downtown amenities. They also would be located close to a proposed streetcar stop.

These proposals add to the UA’s ventures downtown. The University will offer graduate programs in the county’s Roy Place Building at South Stone Avenue and East Pennington Street, and the National Institute for Civil Discourse will be adjacent to the Providence Building at Stone Aveune and Broadway Boulevard.

City and county support are integral to these projects.

“The City of Tucson and the University of Arizona share the same destiny. And we share the vision of downtown Tucson as the place where the city and the UA join together to build a brighter future for our region,” Tucson Mayor Bob Walkup said.

“Today’s announcement of hundreds of new UA residential units in the downtown is a big step toward implementing that vision. It will also help build th downtown economy and reduce the demand for mini-dorm housing in neighborhoods near the central campus.”

University officials will work to complete affiliation agreements with the selected development teams, allowing the design and construction of the projects to proceed.

The UA is taking an innovative approach to public-private projects by actively providing student referrals and branding and marketing assistance in lieu of financial participation. In this manner, the developers can improve their project financing positions while the University avoids additional budget impacts.

The UA will continue to look for other financially feasible opportunities to grow its downtown presence.

In Tucson over the past decade, the arts community and the city center have frequently worked together, albeit informally.

Now David Aguirre, executive director of the Dinnerware Gallery, and Myles Stone, co-founder of Borderlands Brewery, want to seriously develop a new partnership of arts and culture in the area between Congress and Sixth. They’re planning a symposium where Tucson’s downtown artists can come together to exchange and evaluate ideas. And in particular, one idea: the formation of a collective of artists’ collectives in the warehouse Aguirre and Stone share.

The new 16,000-square-foot space will include the brewery and gallery along with a full-fledged art center serving adults and youth. The syposium will help artists to develop direction for the “arts triangle” they envision incubating in the warehouse district.

Myles Stone and Mike Mallozzi don’t need to create a faux Old West ambience for their Borderlands Brewing Co. They just need to move into the century-old warehouse at 119 E. Toole Ave. and set up shop.

“It’s like a frontier town,” brewmaster Mallozzi said. “You’ve got a saddle-harness mural right on the wall.”

By sheer coincidence, Stone’s great, great uncle, James Edward Tooley, owned this very warehouse a half century ago for his produce distribution company. What would Tooley think of its 21st incarnation as a microbrewery?

“If he’s anything like the uncles I know, he’d be very happy,” Stone weighed in. “We want this place to feel like a warehouse by the railroad tracks.”

They rode their bikes around Downtown looking for a place to start Borderlands. They saw the “for lease” sign put up by Peach Properties, which acquired the warehouse a year ago in an Arizona Department of Transportation auction. Borderlands will share the warehouse with Dinnerware Artspace (There are several separate rooms).

They could set up their microbrewery anywhere in town, but brewing in suburbia just doesn’t appeal to them..

“There’s no soul to that,” Mallozzi said. “We want to be a microbrewery of Tucson, not just in Tucson.”

The warehouses in Toole are in the early stages of become a veritable arts district as ADOT in the past year and a half auctioned off a string of warehouse acquired by Peach Properties and Steve Fenton. This will allow a permanence to take shape beyond the month-to-month tenancy that artists have lived with for 20 years.

“We can help shape the future,” Stone said.

“I think it’s a perfect place to bring people together,” Mallozzi said.

Think of Borderlands Brewing as a beer variant of going wine tasting at the winery. This is a brewery with a public tasting room.

“It’s important for us to establish ourselves as not just another bar,” Stone said. “We won’t be open all day, every day, We will have special events, a Friday afternoon club, afternoon and evening tastings, one or two regular events.”

They see Borderlands as a laboratory to get public comment on their brews.

“This is the showcase for our beers,” Mallozzi said.

Mallozzi will craft five mainstay beers: a stout, a brown ale, a lager, an amber and an India pale ale.  Other seasonal offerings will be a vanilla porter and a prickly pear wheat.

They hope to be serving their signature brews by June.

Mallozzi brings a bit of a pedigree to his brewmastery. As an undergraduate at Colorado State University, his student job was as a quality assurance technician at the local Anheuser-Busch brewery. Now he’s making use of his Ph.D in microbiology and immunology as a postdoctoral fellow at the University of Arizona, researching clostridium difficile, the bacteria that causes diarrhea.

“I’d like to develop our own yeast strain and unique flavors,” Mallozzi said.

Stone is a medical student at UA with the ambition to start  family practice physician. Last year, he was a student fellow at the Rural Health Professions Program on the Hopi Reservation.

Like many a high-tech enterprise started in a garage (Hewlett-Packard, for one), Mallozzi started brewing beer a year and a half ago in Stone’s living room and then graduated to Stone’s parents’ garage and backyard.

“You would be surprised to know how many grad students make and enjoy beer,” Stone said. “Or maybe you wouldn’t be surprised.”

Six months later, with their graduate student discipline, they started researching the  industry and found 31 microbreweries in Arizona with Nimbus Brewing Co., Thunder Canyon Brewery and Barrio Brewing Co., the Tucson representation. They determined Arizona had a much lower per capita density of microbreweries than many states, and the large proportion of Arizona’s microbreweries made beer just for their establishments.

“This is a dream I didn’t really think would happen,” Mallozzi said.

Borderlands primarily plans to distribute its beer. Their business plan outlines an ambition to distribute beer around Tucson in the first couple years, expand to the rest of Arizona in years three to five, and beyond that to other states in the region.

“We’d like to become the leading brewery of the Southwest,” Mallozzi said.

Along with broader ambitions, the Borderlands duo also embraces bringing their brewing arts to the heart of the Warehouse Arts District.

“We think it synergizes perfectly with the arts district. We’d like to host events. I think it’s the perfect place to bring people together,” Mallozzi said.

Now with $80,000 left over from the original program, plus another $80,000 in matching money from Providence Service Corp., the Downtown Tucson Partnership will start its second round of facade grants by early next year, said Michael Keith, chief executive officer of the Downtown Tucson Partnership.

And the partnership has larger ambitions: It wants about $2 million from the city and Rio Nuevo to enlarge the program to unprecedented levels.

“For $2 million, we can really have an impact,” Keith said.

Keith made his pitch to Rio Nuevo earlier this month. The board sounded receptive, but it wanted more details. Keith said he has not pitched the idea to the city because of its massive budget deficit.

In 2008, using $450,000 left over from an earlier downtown-improvement program, the partnership allowed 20 people to compete for four facade grants, giving away some money for design work. Three of the original winners and amounts received are: the Scott Building, 64 E. Broadway, and owner Ron Schwabe, $125,000; the Rialto Block and owner Scott Stiteler, $125,000; and The Screening Room, 127 E. Congress St., $63,000. The fourth grant was given to Wigorama, at East Congress Street and Scott Avenue.

Wigorama couldn’t perform under the grant, and it was then given to another downtown owner who later declined it. Finally, it went to Beowulf Alley Theatre, 11 S. Sixth Ave., for more than $31,000. The Beowulf is being finished now, Keith said.

The buildings had to be deemed historic, and the program required that the city be given a “historic easement” on the property. The property owners had to match the grants with their own money.

Facade grants are seen as a way to provide the downtown with an immediate aesthetic face-lift, making tangible improvements to the area for relatively little cost. Providence Service Corp. moved into the Scott Building after it was fixed up.

Keith said the new program will take the $80,000 remaining from 2008, which will be matched by money raised by Fletcher McCusker, chief executive officer of Providence. McCusker had been seeking his own facade grant for a building west of the Scott Building.

In addition to the one or two historic-facade grants ranging from $60,000 to $120,000 for buildings that are on the National Register of Historic Places or are eligible, the facade program also will have a smaller “paint and awning program” for smaller storefronts. That program pays for quick fixes, new awnings or paint jobs.

The requirement for business owners to match each grant with an equal amount of their own will remain the same.

Keith said the partnership will put aside $20,000 to $40,000 initially for the paint-and-awning program to fund awards of between $500 and $5,000.

But if the partnership could get $2 million in funding from the city, it could do 15 large historic-facade grants and 20 grants under the smaller paint-and-awning program, Keith said.

Rio Nuevo Board Vice Chairman Mark Irvin said he was interested in the program but needs to know more about it, specifically about the bidding process and how the projects are selected.

Because the city has a huge budget deficit and Rio Nuevo has a small amount of cash right now, Irvin suggested that the program could be spread out over several years, with Rio Nuevo covering the initial funding and the city picking up the rest.

Keith said he hasn’t talked more with Rio Nuevo about the program.

The facade program provides good bang for the buck, Irvin said.

“I would have loved to have done a facade program when we were flush with cash,” Rio Nuevo’s Irvin said. He added that with the $230 million the district has spent, “we could have done a facade for every building in the district.”

Contact reporter Rob O’Dell at 573-4346 or rodell@azstarnet.com

Peach Properties

299 S. Park Ave., 798.3331, peachprops.com

• Owners: Ron and Patricia Schwabe

• Properties: 1 E. Toole and 119 E. Toole warehouses; Firestone Building, 439 N. Sixth Ave; Market Inn building, 403 N. 6th Ave.; The Scott, 64 E. Broadway and 50 E. Broadway; minority owner One North Fifth commercial strip; 21 apartment complexes

• Projects: Developing 44 E. Broadway; manages Citizens Warehouse, 44 W. Sixth St.

Peach Properties keeps evolving year after year, sometimes even month after month. The primary focus right now for owners Ron and Patricia Schwabe is the pair of warehouses at 1 E. Toole Ave. and 119 E. Toole Ave., which they acquired at Arizona Department of Transportation auctions in the past year. This puts them in the heart of the arts district, and artist studios and galleries will occupy portions of both warehouses. Peach also manages the Citizens Artists Studio Warehouse, 44 W. Sixth St., and owns the Firestone Building, 439 N. Sixth Ave.

Before the Toole Avenue warehouse came to the forefront, the Schwabes were encamped at Congress and Fifth Street, where Ron persuaded the city and developers Williams & Dame to renovate the former Martin Luther King Jr. Apartments into the One North Fifth Apartments rather than tear down the 1970 concrete structure. Across the street, Patricia opened the now-closed Tooley’s on Congress Café and managed the neighboring properties on the 200 block of Congress, where Preen and Dinnerware Artspace were located until last year. Peach Properties also improved the façade of the building now called The Scott, 64 E. Broadway, and own the neighboring 50 E. Broadway, both now occupied by Providence Service Corp. Peach also is developing 44 E. Broadway for Providence, which bought the four-story, hulking concrete shell in summer. A basic theme follows Peach Properties from project to project: Ron believes in reusing historic buildings. Patricia believes in finding the best uses for each space – food is never far away. Tooley’s Café is next door to the Peach offices, 299 S. Park Ave.; Tooley’s on Congress opened right after Peach became minority partners in One North Fifth and across the street at the southwest corner of Congress and Fifth; and Patricia is set on incorporating eateries of one sort or another at the Toole warehouses. “I still think we need to have some eating in all those buildings,” Patricia said. “Tooley’s on Congress was a crazy idea. We needed to have something in there. With Tooley’s open, it helped both sides of the street. We did all the pre-leases for One North Fifth at Tooley’s because we didn’t have an office there.”

The biggest evolution for Peach came in 2000, when Ron Schwabe dropped the Elar Property Corp. name he had used since 1982 and adopted Peach. With the name change came a radical change in business philosophy, and the Peach name offers a vital clue: It’s based on the Japanese story Momotaro the Peach Boy. The 20th century had Schwabe developing and managing properties in Arizona; Portland; Vancouver, Wash.; Albuquerque and El Paso. During the 1990s, Schwabe split his time between Tucson and Portland, where he grew up. “Ninety percent of the properties we managed in Portland were owned by Asians,” which resulted in quarterly trips to Hong Kong for Schwabe, he said. That eventually brought him to the attention of Housemate Kanari of Tokyo. That led to a partnership between Elar and Housemate, the name change to Peach, and ultimately Schwabe sold his Oregon and Washington operations to Housemate, and the partnership ended in 2004. “We had larger properties,” Ron Schwabe said. “We worked out of that business model. We had 160 employees at Elar. That’s a pile of people problems galore. That other model is so gruesome. It was always a fight for more units and the numbers.” Before Housemate entered the picture, Schwabe’s company managed upwards of 5,000 apartment units. Now, the 21 apartment complexes they own and dozen commercial properties they own or manage are all are within four miles of the 299 S. Park Ave. Peach offices. The apartment complexes are all smaller with no more than 20 units. “We don’t follow that corporate model,” Patricia said. “We are a momand- pop deal.” The Japanese influence stuck with Schwabe. “I followed their model of business,” Schwabe said. “They have small properties. It’s just a more sane way to do business, to live. The smaller stuff, it’s close, it’s easy to keep on top of it. It’s just not so cut-throat. The whole punchline is it’s given me the time to do other stuff. ”

Schwabe got his appreciation for historic buildings in Portland, where he had his office in what is now the Pearl District. That’s the upscale business and art gallery quarter that was still known as the Northwest Industrial Triangle when Schwabe set up shop in the 1980s. “I’m a sucker for older buildings,” Schwabe said. “They’re authentic. They have stories. They have a soul. People pick up on it and it actually works.” Ron acquires and renovates building and then Patricia figures out how to use them and handles the leasing and management. Right now she’s working on the 119 E. Toole warehouse, where Dinnerware Gallery will be; but what else? Patricia is considering a brew pub. “We’re tying to be patient and get the best people,” she said. “We get calls from window tinting and auto detailing people. I get calls from people who would be good office users. That would be a shame. We want people who bring business. We don’t want the doors to be shut all day. We want people to experience those buildings.”