After Round 1 stalled, New Orleans convention center officials restart talks for Omni Hotel
By Richard Thompson
Source: The Advocate
May 27, 2018
Second time’s the charm.
That’s what members of the New Orleans Exhibition Hall Authority hope as they return to the negotiating table with a team of developers who have proposed building a $558 million, 1,200-room Omni Hotel at an eight-acre site the authority owns near the upriver end of the Ernest N. Morial Convention Center.
The latest proposal comes after years of stalled negotiations with the same local businessmen, Darryl Berger and Joe Jaeger, who previously were negotiating to build a larger, $1.5 billion development that would have included the hotel as well as retail space, restaurants and entertainment venues on a 47-acre site upriver of the facility.
Under a timeline discussed last week, negotiations for the hotel alone are expected to wrap up by July, with construction potentially beginning in late 2019 and the hotel opening by April 2023.
The development team now also includes Matthews Southwest Hospitality, a Texas-based real estate firm, and Preston Hollow Capital, a Texas-based finance company, as well as Omni Hotels.
Under the latest plans, the total project costs are estimated to be more than $550 million. To help cover them, the developers are seeking $41 million from the Convention Center, as well as a rebate of hotel occupancy taxes equal to 10 percent of gross revenues and 4 percent of other revenues until the bond debt is repaid — roughly 40 years.
In the first year, the hotel is projected to generate almost $57 million in revenue from rooms — making that rebate worth about $5.7 million, according to financial documents that were included in the developers’ proposal. It is projected to generate about $44 million in food and beverage sales, making that rebate worth almost $1.8 million.
The group is also seeking a break on property taxes, under an arrangement that will see the hotel owned by a nonprofit.
“We’re excited about it,” said Michael Garcia, president of Matthews Southwest Hospitality. “We know we have a little bit of a ways to go here, but it’s just the beginning of negotiations. I think everybody’s motivated to get this done and we’re excited to be a part of the team.”
After the project’s debt is paid off, the Exhibition Hall Authority, which governs the giant assembly hall, can take control of the hotel, or it could lease or sell it and retain the full proceeds.
Although the project would not expand the Convention Center itself, the hall’s leaders see the huge initiative as essential for New Orleans to remain competitive with its nearly two dozen rivals for major conventions and sporting events.
Seeking more big events
For years, hospitality industry leaders have been eager to add another high-rise hotel to the city’s skyline, especially one that’s big enough and with the facilities necessary to serve as the headquarters for major meetings at the Convention Center.
With the Super Bowl now slated to return to New Orleans in 2024, having the new hotel would also add more top-of-the-line capacity to the city’s roughly 25,000 hotel rooms.
Plans for the hotel include at least 150,000 square feet of ballroom and meeting space as well as ground-level retail on the 8.1-acre site between Henderson and Race streets.
Now, rather than seeking one development team to oversee the whole projected multi-phase development that tourism leaders envisage, as in the past, the Exhibition Hall Authority is dividing up the project. It is separating the hotel, seen as the most important part of the plan, from the other elements in order to keep it from getting bogged down.
Previously, the authority hoped to have a master developer lease the entire 47-acre site and spend at least $700 million on the overall project.
Berger and Jaeger, both successful local hotel developers, were previously working with Dallas-based Howard Hughes Corp., a national retail developer that owns the nearby Outlet Collection at the Riverwalk.
Those talks collapsed after nearly two years of negotiations, which some described as being slowed down by the complexity of having so many moving parts and multiple parties involved, including the city, the state and the Port of New Orleans.
The local developers, now minus the Howard Hughes Corp., submitted one of three responses that the Convention Center received last year as it gauged interest in the more narrowly tailored version of the project.
Earlier this year, the Convention Center sought formal requests from potential developers, and the Berger-Jaeger group was the only one to respond.
Convention Center officials voted last week to begin negotiating with the group over their proposal. After a deal is reached, hopefully this summer, the framework will be presented to the board for it to decide.
Public scrutiny urged
Meanwhile, the Convention Center’s spending plans have raised questions among some fiscal watchdogs, particularly as the center brings in nearly $60 million a year from state-approved hotel taxes, a sales tax on food and drinks sold throughout the city and other sources.
Increasingly in recent years, local officials have turned to the Convention Center’s kitty to help pay for other arguably tourism-related initiatives, including $23 million toward the cost of former Mayor Mitch Landrieu’s $40 million public safety plan and $12 million to purchase and renovate the former Louisiana ArtWorks building near Lee Circle, a five-story building that’s being leased back to its previous owner, the New Orleans Culinary and Hospitality Institute.
Despite the center’s healthy bottom line, some in the hospitality industry contend that more hotel rooms and more conference and meeting space are sorely needed to keep the city’s convention business growing, and that despite the earlier missteps, the group of local developers has the most experience to get it done.
They say that the new hotel next to the Convention Center also will lift hotel business elsewhere in the city because it will offer the added capacity needed for some big-ticket events that now bypass New Orleans.
“If you had to pick one or two guys from New Orleans to do this deal, Jaeger is No. 1 and Berger is No. 2. One-two, either way,” said Leonard Wormser, senior vice president at Hospitality Real Estate Counselors, a hotel brokerage firm.
“We need that (major new hotel) to get big conventions in town,” he added. “What they’re doing is going to give all the other hotel owners an opportunity to fill their rooms more by having two 40,000-person conventions (at one time). They can do two for one, just like they do in Vegas, just like they do in Orlando.”
But others contend that more public scrutiny is warranted if the Convention Center is going to contribute tens of millions of dollars toward the project, particularly if some of that money could instead be directed toward high-priority infrastructure improvements, with many citing the Sewerage & Water Board’s drainage system.
“The public is being asked to become a direct, long-term investor in this project through multiple subsidies, and the proposed subsidies, when you look at them as a whole, are some of the most substantial that we’ve seen in our research on public investment in private projects in New Orleans,” said Stephen Stuart, vice president and research director for the nonpartisan Bureau of Governmental Research.
“That should raise the level of public attention and public scrutiny to this investment,” he added.
Putting cash to use
Still, Convention Center officials celebrated Wednesday’s decision to begin negotiations, suggesting that it marked a turning point after years of stalled efforts.
“I know that we’re all anxious to see this project move forward,” said Michael Sawaya, who took over this year as president and general manager of the Convention Center.
Sawaya, who has spent four decades in the hospitality industry, most recently as executive director of the Convention and Sports Facilities Department for San Antonio, succeeded Bob Johnson, who retired last year after holding the center’s top job for a decade.
Melvin Rodrigue, president of the Convention Center board and of Galatoire’s Restaurant, said the project would lift the hospitality industry as a whole.
“This is really about bringing world-class attractions to the city of New Orleans to generate demand for our meetings and conventions business,” Rodrigue said at the meeting.
“We’re not sitting on that cash just to sit on that cash,” he added. “We’re sitting on that cash because that cash needs to be put to good use.”
The Convention Center purchased the vacant 47-acre tract across Henderson Street from the center’s upriver end for $45 million in 2000. It was once slated to become home to another 500,000 square feet of exhibit space for the already 1.1-million-square-foot exhibition hall. Those plans were scrapped after Hurricane Katrina in 2005 as tourism leaders realized the extra exhibit space would not be needed.
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