In The News › City pays $2.24M for WTC building lease

Jan 17, 2011

Source: The Louisiana Weekly

Filed under: Orleans Parish, World Trade Center

City pays $2.24M for WTC building lease

Monday, January 17, 2011
By Christopher Tidmore
The Louisiana Weekly

In 1997, architect Stanley Muller saw his $5 million bid to turn the World Trade Center Building into a 5-Star Peabody Hotel rejected in favor of a politically connected insider offering a smaller sum, and a less ambitious plan.

At the time, Muller predicted to The Louisiana Weekly that the effort to convert only half the building into a hotel would reap failure.

“It is just not cost effective to do what they [the WTC board] wants. You need almost all the building to make a profitable hotel,” the architect outlined. “Otherwise, you’ll fail…In the end, I bet you that the city is going to have to bail out this project.”

On Tuesday, January 11, nearly a decade and a half after the World Trade Center Board attempted to convert most of their riverside skyscraper into a profitable hotel, they gave up, proving Muller’s prophecy.

The Board accepted an offer from the City of New Orleans to buy the World Trade Center of New Orleans’ lease on its namesake building at the foot of Canal Street. The deal covers just under half of the city’s financial obligations to the organization and forgives the remains of the debt.

In the various efforts to redevelop the 33-story tower, the city had accrued at least $5 million in debt. The current deal, in which the New Orleans Building Corp.—the city’s property management entity—agreed Tuesday to a buy out the WTC’s lease and cover 2010 insurance costs for a grand total of $2.24 million, has been called by Mayor Landrieu’s spokesman Ryan Berni a good offer that “paves the way” for greater opportunities

Originally, the WTC Board had reportedly hoped for a deal in the neighborhood of $7 million for the remainder of the lease, but the current offer will save the non-profit hundreds of thousands of dollars per annum in building maintenance and security requirements for the property. Forty percent of WTC’s annual revenue of $1.2 million came from building rentals, but that figure was more than made up from expenses that the city will now incur.

Still, according to Berni, the City should nonetheless break even. The city is borrowing against parking revenue at the site to obtain funds for the buyout which the Administration notes will repay that debt within five to seven years.

As for the World Trade Center of New Orleans, they’re moving. Originally, the rejection of the Muller offer, in part, was due to a desire to maintain the upper stories of the skyscraper for consulates, international trade businesses, the Plimsoll Club, and the WTC offices themselves.

In the corresponding decade and a half, numerous foreign governments closed their local consulates and most of the remainder moved out of the deteriorating building. The Plimsoll Club gave up its panoramic perch, moving to the nearby Canal Place. And, now the WTC’s 3,000 square feet of office space will try to find another home in the Central Business District.

According to organization president Conny Willems, no consideration has been made to move outside of Orleans Parish.

The Hotel Deals

The World Trade Center Com¬plex sits upon one of the choicest pieces of real estate in New Orleans, overlooking the river and sitting at the apex of the city’s main streets of Canal and Poydras. Once called the International Trade Mart, the city constructed the skyscraper in 1963 as a vehicle to draw and develop international trade and high paying jobs.

By the mid-1990s, though, the building sat half-empty. The bustling office complex had dwindled into see-through floors with just a few international consulates and the city’s famous Plimsoll Club remaining.

The private board that operated the building hit upon the idea of opening a bidding process to develop a hotel in the lower 18 floors as a way of drawing needed rents and providing structural upgrades to the complex. Any additional funds from the venture would go to fulfilling the WTC’s original mandate of providing jobs though augmenting the port and international trade.

In a March 24, 1997 letter, the World Trade Center announced its intentions. After the release of a Request For Qualifications (RFQ), it received three reliable bids for the property. Politically connected local financier Larry Sisung bid in partnership with the Holiday Inn Crowne Plaza chain. He competed against the French Sofitel consortium and local group called MKL Consulting working on behalf of the Peabody chain. Stanley Muller, the architect and developer behind the MKL proposal offered $5 million a year rent to the WTC, nearly $3 million more than either Sofitel or Sisung.

Yet, Muller’s bid was denied – for two reasons. The local architect said the project was unviable unless the entire property was developed, excepting the upper two floors where the WTC offices lay. Moreover, he argued that the use of state industrial development board bonds were critical to construct the hotel, paid for out of a TIF, tax inducement funding that would have lowered the city’s tax returns from the project.

Critics at the time pointed said that tax benefits should not be a requirement to redevelop the property, and rejected Muller’s bid. Eventually project consultant John Keeling of PFK recommended Sisung partially on the basis that he wanted no direct state aid. (He had also pledged to spend several hundred thousand dollars doing needed repairs of the upper floors, an attractive proposal to the relatively impoverished WTC, which helped him prevail over his French competitors.)

At the time, Muller cried foul, questioning the Crowne Plaza proposal, and their ability to fulfill their promises. In some ways, his criticisms of inadequate funding vehicles proved prescient as Sisung sought legislative financing almost five years later, in April 2002, echoing many of Muller’s original comments.

Sisung justified his change of position by pointing out that September 11 changed many of the dynamics of hotel financing, drying up once readily available sources of revenue. He claimed that the tax money (and potentially state bonds) would help guarantee a five-star chain for the property, having lost Crowne Plaza as a backer. By June 30 of that year, Sisung’s period of development expired, and the WTC board began exploring new bids.

While the building took little damage during Hurricane Kat¬rina, the economic impact of the storm-delayed redevelopment indefinitely.

Interestingly, the WTC board had rejected Muller’s bid on the basis of his demand that the upper floors of the building be included in the project. However, just over a decade later, the WTC was willing to entertain a special tax status and to lease all but two floors of the city-owned tower to New York-based developer Full Spectrum.

That deal fell apart after the local watchdog group the Bureau of Governmental Research objected. They noted that under the proposal the city would lease the property to the World Trade Center authority for 99 years and then the non-profit organization then leases all but the 29th and 30th floors – locations of their offices and the Plimsoll Club – to Full Spectrum to create a mixed use facility that would include hotel rooms and apartments. The price tag would be $30 million upfront and 60 percent of the taxes that would be owed on the riverfront property if it was not tax-exempt.

Under that deal, the annual payment as well as $24.25 million of the one-time payment would have gone to the New Orleans Building Corp., the landlord of city-owned properties and developer of the publicly-owned riverfront that surrounds the mostly empty office building, with the balance committed to the non-profit trade group to reimburse them for past expenses. Yet, as Janet Howard, President of the Bureau of Governmental Research, urged on June 19, 2008, as a private venture, the city should have required the developer to pay the full 100 percent of the taxes that would otherwise be due—something that can be done under the current proposal.

As the building sits on one of the choicest pieces of property downtown, with crescent of the river greeting most of the complex’s windows, proposals for condos and other redevelopments have been put forward. But, as New Orleans’ Single Assessor Erroll Williams noted to this newspaper on Thursday, “It is a question of the condition of the building. Is it more cost-effective to rip it down and start over or to renovate it?”

Jan 17, 2011

Source: The Louisiana Weekly

Filed under: Orleans Parish, World Trade Center

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