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Jun 4, 2006

Source: Times-Picayune


Can post-Katrina New Orleans afford a new City Hall and jazz park complex?
Sunday, June 04, 2006
By Rebecca Mowbray
Business writer

In the $716 million downtown revitalization plan pitched this week by the owner of the Hyatt Regency New Orleans Hotel, private financing would cover the largest share of the project’s cost.

The sweeping jazz park proposal hinges on three sources of money: private dollars to refurbish the city’s third-largest hotel, taxpayer dollars to rebuild a campus of government offices, and a mix of public, private and philanthropic money to finance a six-block jazz park and related arts facilities.

It also involves a checkers game in which office complexes jump from one location to another and parcels of land are swapped.

The big bucks to date — $303 million, or about 40 percent of the project’s cost — have been committed by Strategic Hotels & Resorts, the Chicago-based owner of the Hyatt.

Private money would also be essential to paying for the second-largest chunk of the project, the $260 million jazz park and performing arts complexes, comprising about 34 percent of the plan.

Taxpayers would pick up the estimated $68 million cost for demolishing and rebuilding or relocating two local and two state office buildings, through a mix of money from the Federal Emergency Management Agency, local bonding mechanisms and court fees.

Federal transportation money will be sought for extending the streetcar line from Canal Street to the new park, at a cost of $35 million.

The plan is still in the conceptual stage. While the Hyatt’s contribution is solid, the government money has not been applied for, and the park and arts component is essentially a wish list.

Company is confident

Nonetheless, Strategic, which has spent $3 million developing the concept to see if it can improve business at its hotel by improving the neighborhood, said it believes the project can become a reality.

It plans to spend the next year firming up the rest of the deal, but will move forward with its component regardless of what happens, a stance that the company hopes will signal its confidence in the overall strength of the proposal.

“We believe we have on hand, or can easily access, about 60 percent of the total costs,” said Aubrey “Copper” Hirsch, a lawyer with Baker Donelson Bearman, Caldwell & Berkowitz PC, who is working on the project.

There’s also the unexamined question of whether the public wants the project, or whether it’s the right thing for New Orleans to tackle at a time when basic infrastructure needs remain enormous.

In recent days, while many have expressed excitement about the project, letters to The Times-Picayune also have questioned whether spending money on a new government office complex is wise, given the city’s cratered roads and the broken sewer pipes that are forming geysers all over town.

Janet Howard, president of the watchdog Bureau of Governmental Research, declined to comment on the merits of the project, saying that she hadn’t seen enough details.

But in previous BGR studies on economic development, particularly those that involve tax increment financing, or TIF — a mechanism that skims tax revenue from a new development and dedicates them to its enhancement or financing — the group has stressed the importance of having a comprehensive set of priorities to make sure that money is being spent where it’s most needed.

BGR also advocates a broad planning process to anticipate how projects in one part of the city would affect other parts of the city, and the group believes that plans need to be designed by the community, not offered by private developers. Moreover, because TIFs take money out of the general fund for a special purpose, BGR says the community needs to have guidelines on using them to make sure they serve the greater good.

But the developers say the hurricane has created a limited opportunity to solve long-standing problems and make improvements with outside assistance.

“I know people will say, ‘Why build a new City Hall? Fix the streets and deal with the sewer problems,’ “ said Wade Ragas, a private real estate finance consultant who crunched the numbers for Strategic. “Well, City Hall is going to have to be repaired. Now may actually be an opportunity for the feds to help. Five years from now, there might not be that opportunity.”

Strategic Hotels says that what was presented this week was a well-developed architectural and conceptual master plan. The next step is to work out the details of the financing.

But is a $716 million park district — more than the cost of the stalled $455 million Phase IV addition to the Ernest N. Morial Convention Center and in the same ballpark as the cost of a new football stadium with a retractable roof — something the community can afford?

The developers say yes.

The public purse

The public pieces of the deal — building transportation links, demolishing City Hall, Civil District Court, the old Supreme Court building and another state office building at 325 Loyola Ave. — are less well-defined than the Hyatt’s plans.

The financing mechanisms are there and new options were created by Hurricane Katrina, but until local courts, city and state government have a chance to figure out how much space they need in a shrunken New Orleans and how much they want to spend, the numbers are at best a guess.

For example, right now the city has about 426,000 square feet of office space at City Hall. The Hyatt development team has budgeted about $11 million to build out about 200,000 square feet of office space at Dominion Tower, plus $7.5 million to build out additional space for the City Council chambers and offices. The cost of relocating city offices would change, of course, if the city decides it wants to build a new government complex rather than move into a refurbished tower.

Meanwhile, the project budget lists $45 million for a new Civil District Court to stand in a corner of Poydras and Loyola. Before Katrina, Civil District Judge Michael Bagneris estimated that it could cost $90 million to redo the court. If the local civil and criminal courts are consolidated, as proponents of a more streamlined city government advocate, that would change the specifications and presumably drive up costs.

Another source of uncertainty is that the value of the land swaps included in the project also could change, depending on where the public buildings are located.

But Mike Siegel, executive vice president and leasing director of Corporate Realty, a commercial real estate firm that is helping the city sort through the financial contingencies, said earlier this week that he believes relocating City Hall can be done in a revenue-neutral way.

Because the city would save money on its utility bills by abandoning the 50-year-old City Hall for a more modern facility, it could sell municipal revenue bonds by earmarking the projected savings.

State and federal money

Bagneris said the courts would ask the Legislature for capital outlay money and would increase court fees to pay for the new buildings.

Jerry Jones, the state division of administration’s director of facility planning and control, said his group had been on the verge of recommending demolition of the two state buildings before the storm and has banked $13.7 million for replacement space.

Portions of the money are an opportunity born of disaster. The Federal Emergency Management Agency offers financing to replace those irreparably damaged in the storm, FEMA spokesman Ross Fredenburg said. Through June 30, the federal government would pay for 90 percent of the damage caused by storms to public buildings; the federal participation drops to 75 percent next month.

Finally, the public portion of the project includes $30 million to extend the streetcar line from Canal Street down Loyola Avenue to Girod Street, and $5 million for a transportation terminal.

A second phase would connect the streetcar with the Union Passenger Terminal, a step toward the long-standing dream of light-rail service to Louis Armstrong New Orleans International Airport.

Until regional transportation officials get involved, the $35 million for the first leg of the transportation improvements is subject to change, but Ragas noted that federal transportation money generally pays for projects like this. “It’s a really crucial idea,” he said.

All that jazz

The accounting ledger for the $250 million in public-private financing for the park, the proposed National Jazz Center is a blank piece of paper, but developers say they are rich in ideas in how the money could come from a combination of federal grants, private philanthropy and tax-increment financing.

The anticipated increase in tax revenue generated by rising valuations of properties around the park could be bonded to help finance the project.

Some parts of the project, such as creating parking and downtown retail at ground level beneath the elevated park, would be supported by the parking receipts and rents that they generate.

Private fund raising by Wynton Marsalis, who serves on the Hyatt’s advisory board for the project, and by the New Orleans Jazz Orchestra, which would be based at the park and play 40 dates a year there, could make a big dent in the price tag. Developers, saying there will be national and international interest in the project, plan to brand the National Jazz Center as the international headquarters of jazz.

Specifically, Hirsch, the Baker Donelson lawyer, said developers have identified a number of government programs that could be tapped.

Likely sources include the National Endowment for the Arts, the National Endowment for the Humanities, the Commerce Department, public works grants, empowerment zone programs, Interior Department programs for outdoor recreation, the Institute for Museum and Library Services and the Delta Regional Authority, an economic development group, as well as private arts foundations.

Ragas says the project has no plans to try for the scarce Community Development Block Grant money needed for the recovery of housing, critical infrastructure such as sewerage, and other billion-dollar needs. “We are not proposing that something from the existing block grant money be shifted to this project,” he said.

Another gift of Katrina is the federal government programs created to assist the Gulf Coast after Hurricane Katrina.

Gulf Opportunity Empowerment Zone, or GO Zone, tax incentives allow projects to take an additional 50 percent first-year depreciation on investments. “What that essentially means is that if your project qualifies for consideration, for every dollar you spend, you effectively get back 50 cents,” Hirsch said.

A related program, the Katrina Emergency Tax Relief Act of 2005, allows private economic activity bonds to be issued by the project. Hirsch said developers will have to study which incentive is most appropriate for the projects under consideration.

But one cloud on the horizon is that nonresidential GO Zone projects must be completed by the end of 2008 to qualify. Hirsch said there is a lobbying effort under way to extend the deadlines, and he is optimistic.

So is Mayor Ray Nagin, who said the GO Zone 50 percent depreciation would provide “instant equity” in the new City Hall. Nagin said the Pritzkers, the family that founded the Hyatt hotel chain, have the political pull to get Congress to extend the deadline. “The Pritzker family said, ‘We got the best lobbyists in the country. We’re going to get this fixed,’ “ he said Thursday after his inauguration.

Possible payoff

The Trust for Public Lands, a nonprofit organization that helps communities assemble parcels of land to build parks, said it is not involved in this project, but believes it could have a big payoff for the city in retaining residents, preventing companies from moving their offices out of downtown and spurring additional development.

“Investors look, developers look, at public amenities like this, when they consider making investments,” said Larry Schmidt, director of the New Orleans office of the group, whose Chicago office was involved with that city’s Millennium Park, a development with which the proposed jazz park is being compared. “Many communities view parks as a necessity as it relates to the health of their citizens and the economic viability of downtown. I think it’s a great signal for New Orleans to have a project like this on board.”

While the project may evolve, the bottom line, the developers say, is that Katrina created an opportunity to improve New Orleans.

“It is an opportunity. It’s very hard to think of Katrina as an opportunity, but it’s an opportunity to come up with new facilities that are better suited to the new environment,” Ragas said.

Staff writer Michelle Krupa contributed to this report.

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Rebecca Mowbray can be reached at or (504) 826-3417.

Jun 4, 2006

Source: Times-Picayune

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