In The News › Watchdogs question WTC lease
Watchdogs question WTC lease
N.O. City Council defers its vote
Friday, June 20, 2008
By Kate Moran
The city’s efforts to place the iconic World Trade Center building in the hands of a private developer took yet another detour Thursday, as a government watchdog group took issue with several points in the long-term lease the city hopes to sign this summer.
The city has negotiated for more than a year with Full Spectrum NY, a development firm that won the rights to convert the office building into a hotel, condominium tower and cultural museum. After lengthy rounds of talks, both sides agreed to a lease that awaits approval by the City Council.
The council deferred a scheduled vote on the lease after the nonpartisan Bureau of Government Research pointed to several provisions of the lease that the group thinks would benefit the developer at the expense of the city and its taxpayers.
Janet Howard, president of the watchdog group, argued that the lease does not give the city recourse if Full Spectrum fails to deliver on its plans. She said the city should maintain the right to sever the lease or otherwise require the developer to post a performance bond.
City Council President Jackie Clarkson also said she felt uneasy about the lack of a performance bond. She argued for postponing a vote, as did Councilwoman Shelley Midura, who said she had not been briefed on the contents of the lease.
“I am not trying to kill anything, ladies and gentlemen,” said Clarkson, who works in real estate in her private life. “I’m only trying to make things better in my humble opinion, with only 40 years of experience in real estate.”
The deal for the World Trade Center is a complex arrangement that involves a series of cascading transactions. The city plans first to lease the building for 99 years to the trade group that gave the office tower its name. The World Trade Center would then assign the lease to Full Spectrum, which in turn would lease two floors of the building back to the trade group.
Full Spectrum would pay the World Trade Center $30 million upfront for the lease assignment. The trade group, which promotes business ties between Louisiana and foreign nations, would then pass $24.25 million of that over to the city’s real estate arm, the New Orleans Building Corporation.
In addition to the one-time payment, Full Spectrum must make what is essentially an annual property tax payment. The building is technically tax-exempt because it is owned by the city, but the developer has agreed to pay 60 percent of the taxes that would be assessed if it were privately held.
Howard labeled that provision a “tax break” and said the council should demand a 100 percent payment from the developer. The Bureau of Government Research has long taken the position that projects involving luxury condominiums, as this one does, should not receive any sort of tax abatement.Howell Crosby, an attorney for the World Trade Center, noted that the office building currently does not generate revenue for the city in the form of hotel-motel or sales taxes, both of which would be generated once the development is complete.
Council members agreed to take up the lease at their next meeting, July 10. Councilman Arnie Fielkow said the body should not delay a vote beyond that date because the $24 million the Building Corporation is set to receive under the lease arrangement provides startup money for Reinventing the Crescent, an ambitious plan to redevelop the riverfront.
“Without that seed money, I question whether that project would get off the ground,” Fielkow said.
Sean Cummings, chief executive of the Building Corporation, said the various parties would spend the next week negotiating the addition of a performance bond to the lease.
“It was a good idea suggested by Council President Clarkson,” he said.
While he conceded to the addition of a performance bond, Cummings disagreed with Howard that the city needed to maintain the right to sever the lease if the developer did not complete the hotel, the condos or other portions of the project within a certain time frame, because the city gets its $24 million payment upfront.
“Absolute default provisions are less practical when the entire lease is prepaid. That enforcement mechanism is more appropriate when a lease has monthly installments of rent that need to be protected,” Cummings said.
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Kate Moran can be reached at firstname.lastname@example.org or (504) 826-3491.
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