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N.O. considers mall revival in struggling area

Council takes on revival of N.O. mall

Saturday, September 12, 2009
By Rebecca Mowbray, Business Writer
The Times-Picayune

On Thursday, the New Orleans City Council is expected to consider a proposal to use future tax revenue to help transform the site of the defunct Lake Forest Plaza mall into a modern shopping center called the New Orleans East Marketplace.

At least four of the seven council members have endorsed the proposal in principle, but the president of a government watchdog organization says the deal amounts to little more than a public bailout for the developers.

The property’s owners, Regional Transit Authority Chairman Cesar Burgos and First NBC Bank Chief Executive Ashton Ryan, say their project will bring people back to eastern New Orleans by providing jobs and essential services.

“The mall will serve as an anchor to the revitalization of New Orleans,” said Burgos, a prominent supporter of Mayor Ray Nagin. Burgos plans to redevelop the now mostly empty site through his company, New Orleans East Design LLC. “It’s an investment that will pay for itself many times over.”

But Janet Howard, president of the nonpartisan Bureau of Government Research, warns there are no guarantees that the developers’ grand vision will come to fruition and no safety net for the public if it fails.

“Too much of the money isn’t going to New Orleans East; it’s going to private investors to service private debts. That’s money that could otherwise be used for services, infrastructure or other redevelopment projects in the area,” Howard said.

Burgos and Ryan have asked the city to designate the mall’s site as a tax increment financing district, or TIF, allowing future tax revenue from the site to be pledged to repay bonds issued to finance construction of new stores.

They want the City Council to agree to dedicate 2 cents of the city’s share of all sales tax collected at the site, including tax from the Lowe’s home improvement store already in operation there, to their project for up to 25 years.

If the council agrees, the state will be asked to match the city’s 2-cent sales-tax commitment, giving the developers the right to almost half of all sales taxes collected at the site.

If the requests are granted, the developers will use the money to pay off their $11 million mortgage on the property, the remnants of long-standing debts that were refinanced when the Lowe’s was built on a portion of the site after Hurricane Katrina.

Ryan and Burgos’s vision for the site includes a Wal-Mart, other retail stores and restaurants, a gas station and a police substation. If they are successful, they later hope to build a 500,000-square-foot “lifestyle” mall with more restaurants, a renovated movie theater and a parking garage.

“We have lots of support from the community,” Burgos said.

—- Short on details —-

But the ordinance coming before the council is short on many details.

The boundaries of the district are not firm, simply referencing the “Lake Forest Plaza Shopping Center” described in state law, where there actually is no description. There are no requirements that the developers must deliver on the architectural plans they showed to the council last month. And there are no provisions for what happens if the project fails, save for a clause that if construction hasn’t started in 36 months, the city and developers will “negotiate in good faith” to “successfully develop” the project.

Burgos said paying off the Lake Forest Plaza’s mortgage is reasonable because cities often buy the land in TIF projects. He said it’s impossible to have guarantees that the project will be built because later phases depend on earlier ones. “Unfortunately, we can’t guarantee anything,” he said. “It’s all market-driven.”

But Burgos — who said he expects to earn a 15 percent development fee on any investment in the site, although that’s not spelled out in the ordinance either — said he’s optimistic that the project will be successful because of the great need for retail in eastern New Orleans, as well as the city as a whole.

Of the $42 million that the developers say they hope to raise from the TIF, more than half — $23 million — would go to paying off their mortgage and transaction costs related to the issuance of bonds.

—- Wal-Mart not a sure thing —-

Part of the construction budget also depends on selling land to Wal-Mart for $5 million. Ryan has said “there is no way” the overall $220 million redevelopment plan can move forward without a commitment from Wal-Mart or another big-box retailer to open a store on the site.

But Don Randon, a local real estate broker who represents Wal-Mart Stores Inc., said the mega-retailer’s participation in the project is far from firm.

“I think to characterize this as a deal would be a great exaggeration. It’s not even negotiations at this point, it’s more discussions,” Randon said, adding that Wal-Mart still owns the property in eastern New Orleans where it operated stores before Katrina.

Howard said the only concrete parts of the proposed deal are that the city will be giving up much of the tax revenue it now earns from the Lowe’s and that it will be paying off Lake Forest Plaza’s mortgage and other debts. “I think it’s just shocking. I have serious concerns about using public funds to pay off private debt,” she said.

She has additional concerns that the public may be giving up more than it’s getting.

Because of a 2007 court decision, Burgos and Ryan’s company, Lake Forest Plaza LLC, owes the city $1.6 million on a delinquent loan, plus $1.4 million in interest and penalties.

Under an agreement that Mayor Ray Nagin struck with the company in May, Lake Forest would put $1.6 million in escrow, to be released to the city when the TIF is created — essentially compelling the city to approve the TIF if it wants to get paid — and the $1.4 million would be forgiven as the developers make progress.

—- Paying off debts —-

The agreement also uses public money to take care of a debt that the former mall’s failed movie theater owes to Lake Forest Plaza LLC, while that same movie theater also owes money to the city.

The theater, Grand of the East LLC, owes Lake Forest Plaza $1 million in rent, but the mayor’s agreement says the TIF will cover it. Meanwhile, Howard says, the Grand owes the city about $4 million or $5 million on a U.S. Department of Housing and Urban Development loan administered through the city; that debt remains.

“They’re paying off everyone else’s debts on the property except the city’s own,” Howard said.

Debate over the proposed TIF is expected to intensify next week, when Burgos and Ryan plan to release a study touting their project’s potentially powerful economic impact. Howard said the Bureau of Government Research may issue a formal assessment of its own.

City Council President Arnie Fielkow, who chaired an Aug. 11 committee hearing at which Burgos and Ryan presented their plans for the site, deferred comment to eastern New Orleans Councilwoman Cynthia Willard-Lewis, the sponsor of the ordinance. Willard-Lewis did not return phone calls.

During the committee meeting, Fielkow, Willard-Lewis and Councilwomen Jackie Clarkson and Cynthia Hedge-Morrell all indicated their support for the basic idea of the TIF, though details of the proposal were never discussed.

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