After talks stall, Morial Convention Center narrows focus for proposed upriver hotel project

By Richard Thompson

Source: The Advocate

December 24, 2017

After years of stalled negotiations, Ernest N. Morial Convention Center officials have returned to the drawing board as they seek ways to kick-start a potentially $1.5 billion riverfront development that would include a 1,200-room hotel, retail space, restaurants and entertainment venues.

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.

Now, rather than pursue one development team to oversee the whole effort, as in the past, the New Orleans Exhibition Hall Authority, which governs the giant assembly hall, is moving to divide 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.

In fact, the same team of local hotel developers involved in previous talks may end up moving forward with that part of the overall project.

Previously, the Exhibition Hall Authority hoped to have a master developer lease the entire 47-acre site at the upriver end of the Convention Center and spend at least $700 million on the overall project.

In early 2015, the board began negotiating with a group led by the Dallas-based Howard Hughes Corp. and local businessmen Joe Jaeger and Darryl Berger. Hughes is an experienced national retail developer and owns the nearby Outlet Collection at the Riverwalk. Jaeger and Berger are both successful local hotel developers.

The local developers, minus the Howard Hughes Corp., has submitted one of three responses that the Convention Center received as it gauged interest in the more narrowly tailored version of the project. And the group’s response to a request for qualifications certainly offered the most specific ideas.

Their effort also includes Matthews Southwest Hospitality, a Texas-based real estate firm, and Preston Hollow Capital, a Texas-based finance company. Omni Hotels would manage the property.

Neither Berger nor Jaeger could be reached for comment last week.

Under the group’s proposal, the Exhibition Hall Authority would own the property after 45 years. The hotel, expected to cost about $650 million, could be operational by April 2022.

“This hotel will have its own character and flavor, but will be rooted in all that is New Orleans, with a scale and grain that residents and visitors alike will recognize as authentic but distinctly unique,” the group’s response said.

The response, the most detailed of the three submitted, was obtained by The Advocate through a public-records request. The board is expected to solicit formal proposals from developers early next year.

For years, many hospitality industry officials have been eager to add another high-rise hotel to the city’s skyline, especially one large enough and with the facilities necessary to serve as the headquarters for major meetings at the Convention Center.

Even though the Central Business District has seen a wave of recent hotel construction and conversion projects, projections that roughly 3,000 new rooms would be added to the city’s inventory haven’t all come to fruition.

But the Convention Center’s plans and a perceived lack of transparency over its spending 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.

It is sitting on so much money that local officials have recently turned to the Convention Center’s kitty to help pay for other arguably tourism-related initiatives, including $23 million toward the cost of Mayor Mitch Landrieu’s ambitious $40 million public safety plan and $12 million to purchase and make improvements to the former Louisiana ArtWorks building near Lee Circle, a five-story building that will be leased back to its previous owner, the New Orleans Culinary and Hospitality Institute.

“When you look at the magnitude of the expenses that they’re undertaking, there certainly is a cause for concern about the relatively quick decision-making and use of these funds, and the fact that with their use, the opportunity for redeployment goes away,” Amy Glovinsky, president and CEO of the nonpartisan Bureau of Governmental Research, said of the proposed hotel and economic development project.

Given that the Convention Center could end up contributing tens of millions of dollars toward the project, Glovinsky said it’s worth discussing whether some of that money should instead be redirected to “high-priority needs for the community, some of which are urgent,” such as the Sewerage & Water Board’s drainage system.

“The scale of this is cause for a very deliberate and transparent process, where the tax-paying public can assess and understand what’s happening with their tax dollars,” she said.

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 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.

Center officials also got two other responses to their recent request for qualifications.

One was from Legends, a hospitality firm with offices in California and New York, that envisioned a four-star hotel boasting “exceptional place-making designs, extraordinary food, beverage and retail experiences combined with cutting-edge technologies to create a unique New Orleans brand.”

The firm, which is seeking a 99-year lease, has experience working with professional sports stadiums, including Levi’s Stadium, home of the NFL’s San Francisco 49ers; Angel Stadium, home of MLB’s California Angels; and Yankee Stadium in the Bronx.

Reached by phone last week, Pete Dordick, a Legends development director, first agreed to discuss his firm’s proposal but then declined comment after conferring with Convention Center officials.

The third response, from Georgia-based Tellurian Holdings, a firm with aspirations to become “the world’s leading place-maker,” proposed an approach that involves “creating public spaces that promote people’s health, happiness and well-being.”

Tellurian, which notes experience in clean-energy and real estate projects, dedicated a portion of its submission to describing a futuristic New Orleans in the year 2030, billing it as “the smartest city in the United States.”

It also discussed solving social problems through potential partnerships with industry giants such as Tesla and Google and nonprofits such as the Clinton and Gates foundations. However, it didn’t outline any plans for building a hotel in what was described as solely a “visionary document.”

James Fultz, CEO of Tellurian Operating Group, did not return a message Friday.

Early this year, Melvin Rodrigue, chairman of the Convention Center board and president of Galatoire’s Restaurant, blamed the earlier proposed deal’s complexity for slowing it down. Talks involved multiple parties, including the city, the state and the Port of New Orleans.

“What we found was that kind of bogged us down a little bit, so we went back out with a narrower scope, for just the hotel, because we believe the hotel is the most difficult part to pull off,” Rodrigue said recently.

Despite breaking it up, the Exhibition Hall Authority hopes to follow a similar timeline for both aspects of the proposed development, he said.

Meanwhile, some work on the larger vision of redeveloping a large swath of the riverfront has begun, including roughly $84 million being spent largely to transform Convention Center Boulevard into a more pedestrian-friendly street designed to connect the Warehouse District to the French Quarter in an attractive, enticing way.

After years of tourism increases, hospitality officials predict a relatively flat year for hotel occupancy in 2018, a forecast that’s partly blamed on competition from Airbnb rentals. But Stephen Perry, president and CEO of the New Orleans Convention and Visitors Bureau, said it’s important to finally move forward with the riverfront project.

“A hotel on the upriver end of the center is absolutely critical to us being able to optimize the layering in of business throughout the center and increasing its occupancy and revenue,” he said.

Despite the downtown construction boom, many new rooms that were expected to become available have faced their own delays. In addition to the Convention Center hotel, examples include the 350-room Four Seasons Hotel being created at the foot of Canal Street in the former World Trade Center building; a 225-room Virgin Hotel in the 500 block of Baronne Street; and a 96-room Moxy Hotel in the 700 block of St. Charles Avenue.

But some argue that having the Convention Center hotel 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.

“It really is a rising tide lifts all boats. It will really help everybody,” said Leonard Wormser, senior vice president at Hospitality Real Estate Counselors, a hotel brokerage firm.

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