Drive around the biggest cities in Arizona -- Phoenix, Tucson, Flagstaff -- and you'll see an interesting contrast in land usage: packed-full swaths of retail, residential, business and industrial buildings bellied up to vast fields pockmarked with weeds and here and there, a house or two, or even a shiny new casino.
An example is an intersection near downtown Scottsdale. To the north and west are apartment buildings, several schools, strip malls, bustling businesses and busy gas stations, scores of restaurants and block after block of southwestern-style houses. In stark contrast, a discount cigarette store with a drive-up window sits on the southeast corner, surrounded by dirt -- lots of dirt, acres of it. Farther south is one of the few remaining drive-in theatres in the Valley of the Sun; a mile or so east is Casino Arizona, a luxurious oasis for gamblers. Around the cigarette store, the drive-in and the casino are acres and acres of undeveloped land bordering Phoenix, the nation's fifth-largest city. And this area's composition of no-vacancy usage right next to largely undeveloped land is replicated throughout the metropolitan area.
There's a reason for this juxtaposition: the undeveloped space is reservation land, long ago set aside for Indian tribes by the federal government's treaties, executive orders and agreements. But modern growth has pushed the city right up to the tribal borders, bringing about a long-overdue collaboration on land usage and development, according to Ivan Makil, a development consultant and former three-time president of the Salt River Pima-Maricopa Indian Community.
And he's not just talking about small pockets of urban land. Approximately one-third of Arizona's land is owned or under the jurisdiction of Indian tribes. Another one-third is federal land, and the remaining space is state and private land. "As Phoenix, Tucson and other areas continue to grow, tribes must be considered players in development," Makil explained. Excluding tribes from previous decision-making was a mistake, he added.
When it comes to building on tribal land, Makil's footprint is huge. Under his leadership, the Salt River Pima-Maricopa Indian Community became the nationwide model for economically successful business development coupled with cultural sensitivity. He oversaw the first ballot initiative on gaming in Arizona and the U.S.; built an investment committee to manage a portfolio containing all tribal assets; negotiated the construction of Highway 101 on tribal land and facilitated development of the Salt River Landfill, the Chaparral Business Park and Casino Arizona. He served on the International Founder's Council for the Smithsonian Museum of the American Indian, helped create a national summit on emerging tribal economies and over the years, advised the president and cabinet on Indian affairs.
On February 22, Makil told 350 real estate and finance experts attending a Phoenix, Arizona, conference sponsored by the W.P. Carey School of Business that the key to developing tribal land is "an understanding of seven-generation thinking."
"Each Indian tribe is unique, yes, but all tribes believe in balancing the economic impact of every decision with the physical and spiritual impact. We believe that everything, including mortgages and investments, affects the delicate scale of our lives. We understand the universe as massive, but still requiring this constant, delicate balancing. Seven-generation thinking means giving thought to what a decision's impact will be on the next seven generations, and considers the responsibilities that come with opportunities. It's long-term thinking, which is valuable for anyone making a decision," he said.
The conference began with a traditional indigenous blessing, offered by Ricardo Leonard of the Salt River Pima Maricopa Indian Community, which set the stage for Makil's comments about seven-generation thinking. Leonard expressed his thoughts in prayer and through traditional songs describing a deeply held belief among native peoples of the importance of respecting the land, the elements and the need for balance as part of any development that takes place in Indian communities.
"It is not a perspective that most developers may readily think of when working with Indian communities," Makil said, "yet it is a concept that is sacred in many ways to the communities and integral to achieving sustainability and a truly viable seven-generation economy."
Crocker Liu, finance professor and director of the real estate center, said the blessing was incorporated into the program in order to remind the audience that development in the West occurs within and must harmonize with an older context.
Makil described a well-known example of seven-generation thinking this way: "My ancestors built a canal system here 2000 years ago, without the benefit of today's technological tools. They planned carefully before hand-digging the canals. Go forward to the 1900s, and settlers needed to harness water for development. Using their modern technology, the settlers laid out an irrigation system of canals to bring water throughout the Valley. Once they began digging, though, they realized their plan was an almost exact overlay of what my ancestors did 2000 years before. Good decisions last much longer. This kind of thinking is part of how tribes govern today," he explained.
For this reason, anticipate that closing a deal with a tribal government or Indian business may take significantly longer than off-reservation. Non-Indians sometimes mistake the extended decision-making period as inefficiency, Makil said. As an example, he brings up Scottsdale Pavilions, a thriving retail center built as a joint venture on reservation land near Indian Bend and Pima roads. Development took two years -- it opened in 1991 -- which is likely longer than it would have taken on non-reservation land, he explained. But it's a solid success, according to De Rito Partners, the company that bought Pavilions for $88 million in January 2008, then announced a $25 million renovation and expansion.
Another point to consider is that tribal governments are just that -- governmental bodies ruling over sovereign lands. Tribal governments create their own tax structures, pass laws, employ police forces, regulate business and industry and perform other functions similar to the governments of neighboring, non-Indian towns. At the same time, despite tribal sovereignty, federal law is recognized on tribal land, so entities seeking to do business there can forget about escaping the feds' oversight, Makil noted.
But there's another, unfortunate similarity between how tribes and non-tribal entities govern, he said. "Tribal governments have become very busy bureaucracies. We were told to follow the federal model, and we did -- too well, it seems," he said with a laugh. "So sometimes, like with the federal government, doing business with a tribal government can be … challenging."
A different reality
But those commonalities don't negate the fact that doing business on reservation land is different from putting up a hotel or building a shopping center on non-Indian property. A quick history lesson helps clarify matters. As settlers migrated west and began wrestling over land usage and ownership with Indians already living there, the government "recognized that it cost too much to fight with the tribes. Instead, they decided to negotiate for specific land areas that the Indians would live on," he said.
Tribes gave up rights to their land and natural resources, and agreed to stay within reservation boundaries. In return, the feds agreed to provide education, healthcare, housing and public safety on the reservations. When mulling over development opportunities today, tribal government leaders work from these realities. For instance, it's unlikely that a tribe would consider a residential development on Indian land unless the homeowners and renters were Indian.
There are several reasons for this, Makil said. First, non-Indian residents would mean taxation without representation, since they would not be allowed to vote in tribal elections. Second, there is a clear title issue. Indian land is owned one of two ways, universally or through allotment. Alloted land was originally granted by the federal government to specific individuals, who, it was thought, would farm the land, then sell it. But Indians generally don't believe in selling land, so it was instead handed down through the generations. As a result, Makil said "a 10-acre allotment of land today may have 200 or 300 owners, and it is necessary to get the permission of 50 percent of them to build on it."
Successful partnering on reservation land means committing to a long-term relationship with tribal leaders, he explained. "With tribes, relationships are all about respect. It's the same with any business, really. Patience, trust, respect, understanding, integrity and collaboration are required. Those who recognize this can gain huge opportunities," Makil continued.
Financing developments on Indian land is another challenge. Over time, tribal leaders and non-tribal entities have largely settled on 65-year leases tied to loan arrangements -- a straightforward 55-year lease with a 10-year renewal option. In some cases, tribes lack the cash to provide project infrastructure such as water, power and sewage, so builders may step in, and write a special consideration into the lease to cover the cost. Keep in mind that when determining reservation-land rental, the Bureau of Indian Affairs requires rent at least equal to 10 percent of the land's value, he added.
What sort of development opportunities do tribes welcome today? Just about anything will be considered, with the exception of nuclear power plants or dirt racetracks, he noted.
"Tribes are environmentally conscious. They want their images and beliefs reflected in anything built on their land. So "green" buildings are key. And you won't see many high rises on reservations," Makil said. Another thing to consider: unlike cities and towns, tribes cannot annex land, so they don't grow bigger in terms of acreage.
- Some tribal governments still lack a few tax and zoning laws necessary to facilitate smooth development by non-Indians. This is changing, though, Makil said.
- When non-Indians develop land on a reservation, the Bureau of Indian Affairs requires rent at least equal to 10 percent of the land's value.
- "Misguided folks" who approach a tribal government with a business proposition that precludes sharing profits and other benefits won't close the deal. Yet tribal leaders still get approached with exploitative offers that presume a lack of business acumen on the part of Indians, Makil noted.