In The News › Council to decide fate of Lake Forest Plaza mall financing today

Council to decide fate of Lake Forest Plaza mall financing today

Thursday, September 17, 2009
By Deon Roberts, Online Editor
New Orleans CityBusiness

The City Council is scheduled to vote today on a financing mechanism that the developers of a mall in eastern New Orleans say they need or the project won’t happen.

New Orleans attorney Cesar Burgos and First NBC Bank President Ashton Ryan plan to overhaul Lake Forest Plaza mall, an 81-acre eastern New Orleans shopping venue that has been shuttered since Hurricane Katrina. They say the mall is sorely needed in eastern New Orleans where retail options are few and far between. They also say redeveloping the mall, which would be called New Orleans East Marketplace, would prevent the loss of sale taxes dollars to neighboring parishes.

But to make the project work, the developers say, a tool known as tax increment financing, or TIF, is necessary. The TIF would mean the city and state would each forgo 2 percent in annual sales tax collections that would be used to fund the project. Each year, the 4 percent is expected to generate $15.5 million.

The TIF has critics.

On Wednesday, the Bureau of Governmental Research released a report blasting the subsidy, saying tax dollars would be used to “pay for private problems.”

An attorney for the developers called the report inaccurate.

In the report, BGR criticizes the planned use of TIF proceeds to pay off the developers’ private debt.

The report says the city holds a $3 million judgment for prior debt against the mall property’s owner, Lake Forest Plaza LLC. Under a May agreement signed by Mayor Ray Nagin, the city would receive only $1.6 million and receive that only upon agreeing to provide the developers with the TIF, and the rest of the debt would be converted into a forgivable note, the report says.

“The proposal would leave delinquent debts to the city unpaid,” the report says, and “would commit the city to provide tens of millions of dollars to assist a private entity that is in default on pre-Katrina debt to the city. It would not, however, make the city whole on the debt it is owed on property at the site.”

In addition, Grand of the East LLC owes the city more than $4 million on a Department of Housing and Urban Development loan for a vacant movie theater on the site, according to the report. The Grand of the East is a separate entity from Lake Forest Plaza LLC, although Burgos said Ryan is a minor investor in The Grand.

“After investing millions of dollars in TIF funds, the city would still face the prospect of collecting on its loan to Grand of the East LLC and paying off the corresponding loan to HUD,” BGR says.

Approximately $12 million of TIF proceeds would be used to settle private debt, the report says, including a $11 million owed by Lake Forest Plaza LLC to Lowe’s, which became the holder of the mall site’s mortgage. Lowe’s is the only business operating on the site.

“Lake Forest Plaza LLC claims that its property cannot be redeveloped without paying off the mortgage,” BGR says. “This may very well be a problem for the LLC, but it is not a problem intrinsic to the site. The property owner’s inability to take a fundamental step to prepare its property for development is a personal predicament. In no way does it lead to the conclusion that the public should pay off Lake Forest Plaza LLC’s debt and leave the property in its hands.”

BGR says the redevelopment proposal would “forgo public benefits to pay for private problems.

“Paying existing debts and the upfront costs for new TIF debt would soak up much of the public investment, severely reducing the amount of public funds left for actual improvements at the site.”

Burgos and Ryan could not be reached for comment, but in a letter to BGR, Stephen Dwyer, attorney for the developers, blasted BGR for giving the developers the report on 10 a.m. Tuesday and giving “a mere 24 hours to respond to your 11-page report.” He also said the report contained misleading and inaccurate statements.

“It is clear that your critique of the Lake Forest Plaza TIF is biased, inaccurate, misleading and founded upon a lack of understanding of the structure of the TIF, the economic impact to the city of New Orleans and the needs of the people of New Orleans East,” Dwyer wrote.

Dwyer’s letter says that no TIF bonds or TIF proceeds will be used to settle pre-Katrina debt in the Lake Forest Plaza LLC settlement agreement with the city.

A portion of TIF bond proceeds will be used to retire the mortgage debt that was transferred to Lowe’s, Dwyer wrote, adding that the project cannot move forward and the bonds cannot be issued as long as there’s mortgage debt. Dwyer called such use of TIF funds “valid and legal.”

The total debt that will be retired using TIF bond proceeds “is much less than the total bond proceeds and barely represents 5 percent of the total development costs, at least 50 percent of which are being provided by or through the developer,” Dwyer wrote, adding that the vast majority of TIF bond proceeds will be used for “brick and mortar” portions of the development and a debt service reserve fund that will prepay the bond debt, saving the city millions of dollars in interest.

Dwyer also pointed out that the Grand of the East LLC “is totally separate and distinct from Lake Forest Plaza LLC. Its debt to the city is unrelated to the proposed TIF and development.”

Burgos says that with the mall closed, the city isn’t collecting any sales taxes anyway. He said he is counting on the project being so successful that the bond debt might be paid off in less than 25 years.

“I think that the average New Orleanian and most of our elected officials are going to say there’s a need for this … because we are literally giving away our tax dollars to our neighbors,” he said, referring to New Orleanians shopping in Jefferson and St. Tammany parishes.

Some residents are behind the TIF.

“I think that this project is so essential that the TIF is absolutely a requirement in order to make it work,” said Tangee Wall, chairwoman of the economic development committee of the East New Orleans Neighborhood Advisory Commission. “Without the TIF the project itself won’t move forward.”

Eastern New Orleans needs the mall, she said, adding that shopping options are so limited, “we have to go out of our area to do basic shopping.”

BGR’s report doesn’t only take issue with how TIF proceeds will be used. The organization also says there are potential conflicts of interest with Ryan and state Sen. Ann Duplessis sitting on the board that governs the Lake Forest Plaza TIF district, which the Legislature created in 2003. Duplessis chairs the board. Ryan was made secretary-treasurer.

BGR said Duplessis is an executive at Liberty Bank, whose president and CEO, according to the most recent filing with the Louisiana Secretary of State, is a principal member of Grand of the East LLC.

Duplessis said there were 13 principal members of The Grand, including Liberty Bank President Alden McDonald. But, Duplessis said, the city did not require a personal guarantee on The Grand loan, meaning the 13 members cannot be held liable for the debt.

“They are not on the hook for anything at all,” she said. “Alden or the members will not benefit at all from this because the only person that the city can go after is the company (the LLC) (and) the company is defunct.

“So my working for Liberty Bank has nothing to do with benefiting Alden McDonald at all with this TIF.”

BGR also said that although the Louisiana ethics board in March 2008 ruled that the owner of the mall could serve on the board as long as the owner did not participate in board matters in which the shopping center or the owner have a substantial economic interest, “it is hard to imagine what matters would not require recusal.”

Dwyer says that there are no conflicts of interest in the governance of the TIF district board.

The state statute that created the district required that a representative of the developer sit on the board, he wrote. Ryan sat on the board as the developer’s representative, but since June Ryan has no longer been active on the board, Dwyer said. In the letter, Dwyer explained, Ryan resigned “in order to avoid any suggestion or appearance of a conflict of interest.”•

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