"How the state structured this one is that you're bidding on the appraised value. As you are bidding on the appraised value, your ground rent goes up," Gary Pederson, vice president and general counsel for Pederson Group Inc. in Phoenix, tells GlobeSt.com. "It went up pretty significantly, bidding was pretty competitive." It was the firm's first foray into state auctions, he says.

Pederson beat out two competing bidders and subsequently entered a 65-year ground lease with the state. Although the site was appraised at $6.8 million earlier this year, the lease was based on the $11.6-million bid, Pederson explains. The firm will pay 5% of the value for the first year of the lease; 3.75% in the second and third years; and 10.85% for the fourth year. A 0.5% bump will occur every five years for the remainder of the term.

The company plans to break ground on the North Scottsdale Mercado in first quarter 2005, eyeing a fall opening. Pederson has started negotiations with a potential grocery store anchor for what is being touted as a class A, upscale retail destination with rents exceeding $30 per sf. The majority of stores will front Hayden Road.