In The News › WTC Deal Under Scrutiny Again

Jun 23, 2008

Source: Louisiana Weekly

Filed under: Orleans Parish, World Trade Center

WTC Deal Under Scrutiny Again

Louisiana Weekly -Your Community.

WTC Hotel Deal Under Scrutiny Again

By Christopher Tidmore, Contributing Writer
June 23, 2008

For the second time in a decade, there is an attempt to convert the World Trade Center building into a hotel, but a
local good government group says that the tax abatements that for which the developer has asked are unreasonable.

The World Trade Center 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. The non-profit organization operating the property
seeks to lease all but two floors of the city-owned tower to New York-based developer Full Spectrum.

The local watchdog group the Bureau of Governmental Research objected to the deal where the city leases the
property to the World Trade Center authority for 99 years and 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 were not tax-exempt.

The annual payment as well as $24.25 million of the one-time payment would go 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.

On Thursday, June 19, 2008, Janet Howard, President of the Bureau of Governmental Research, urged the city to
require the developer to pay the full 100 percent of the taxes that would otherwise be due.

Not the First Hotel Deal

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-1990’s, 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 pointedly 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 11th 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 30th 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 Katrina, the economic impact of the storm delayed
redevelopment until recently.

Interestingly, the WTC board which had rejected Muller’s bid on the basis of his demand that the upper floors of the
building be included in the project and special tax status be afforded to his deal ultimately approved a variant of those
same requirements for Full Spectrum. (There are differences, of course. Many of the current Foreign Consulates will
be able to retain their specific office suites, and there are far fewer tenants in the World Trade Center post-Katrina.
Nevertheless, the firm denial of use of the upper ten floors of the property, originally areas that were to be reserved
for port related activities, was dropped.)

Then, as now, business critics have questioned the rationale of using tax money for direct public financing of a
project. Howard and the BGR Board joined the chorus in a letter to Councilwoman Jackie Clarkson on Thursday.

“The World Trade Center property enjoys one of the most attractive locations in New Orleans,” Howard explained.
“It is hard to believe that it cannot be developed in a way that protects riverfront views without a tax break. If indeed
it cannot, the city should consider holding the property until the market improves.”

The BGR said that the prime location of the property was payment enough. The city should demand 100 percent of
the taxes it would otherwise be owed. It should further “clarify the terms for the upfront payment of the taxes”, as the
dates are “ambiguous”.

The watchdog group further requested that the rent not be retained by the NOBC for riverfront redevelopment but
directed into city’s needy general coffers. Finally, the BGR letter suggested that the Council requires a performance
bond or other mechanisms to protect the city if the developer fails to deliver the world-class museum, hotel, condos
and retail development promised.

Unlike Sisung’s deal, under the current contract, NOBC cannot reclaim the property if the tenant fails to develop it,
Howard explained, because the base rent would have been already paid. More importantly, under the contract, the
tenant would have the unprecedented right to demand that the NOBC sell the property through a public auction.

In the letter, Howard called the provision “On its face, this is an extraordinary provision to include in a commercial
real estate transaction. It should be explained and evaluated in light of the explanation.”

City Council President Jackie Clarkson likewise requested additional protections and a performance bond several
weeks ago. The council voted to defer the lease review and vote at the time due to the late addition of amendments.
The review of those provisions had only been included in the Council’s agenda at the last minute following a deferral
request by Clarkson on June 5, 2008.

Jun 23, 2008

Source: Louisiana Weekly

Filed under: Orleans Parish, World Trade Center

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