Controversial New Orleans convention center hotel bill gets OK; a look at what’s next

By Anthony McAuley

June 9, 2019

The controversial 1,200-room hotel proposed for the upriver end of the Ernest N. Morial Convention Center passed a major milestone on Friday, when a hard-fought legislative bill laying out the terms of the project was signed by Gov. John Bel Edwards.

As part of the grand bargain struck between New Orleans’ tourism interests, the state and the city, the Convention Center’s leaders agreed to contribute $28 million from the center’s reserves to help fix the city’s infrastructure. And in a concession from an earlier proposal, they also agreed to a tax plan that would give the new hotel property-tax breaks for only a few years.

Now, Convention Center leaders say, they are preparing to move on to negotiations with the developers, Matthews Southwest of Dallas and a consortium that includes the Berger Co. of New Orleans, about how exactly the $558 million hotel will be built, paid for and managed.

“We think we’ll be finished negotiating (on the hotel) coming out of summer. Then we’ll have conversations about planning out the remainder of the development” of surrounding land, said Melvin Rodrigue, the chairman of the authority that oversees the state-owned Convention Center.

The project still has its critics, who argue that other large public subsidies required to get the hotel off the ground are not the best use of taxpayer money. But Rodrigue and other tourism leaders are breathing a sigh of relief now that a deal has been reached with the city and state.

Rodrigue said he expects talks with the hotel’s developers will be done in a couple of months. A proposal would then be put to the center’s board for consideration in September. If it is approved, site preparation should start in the new year, followed by architectural and engineering work and then construction, with completion scheduled for late 2023 and the hotel opening early in 2024.

Rodrigue also expects the huge hotel project will be a catalyst to rekindle talks with other prospective tenants and developers on the “master plan” to transform the rest of the Convention Center’s 47 upriver acres, which are currently barren or used as parking areas, into a district of entertainment venues and residences.

The project has stumbled several times in the past. The first effort five years ago, which included the Howard Hughes Corp., crumbled in part because the Convention Center team was trying to put together the entire master plan development — estimated at up to $1.5 billion — rather than focus first just on the hotel, Rodrigue said.

“The hotel is the most important component to us,” said Rodrigue, who stirred up renewed controversy in April when a plan to lease property near the hotel to TopGolf for a driving-range and entertainment complex was quietly proposed and then quickly scuttled.

In early 2018, Convention Center officials looked set to move forward quickly with their hotel project. But criticism from the Bureau of Governmental Research, a nonpartisan policy group, over the hundreds of millions of dollars in tax giveaways built into the proposed deal put Rodrigue and his colleagues on the defensive.

In addition, Mayor LaToya Cantrell came out against the hotel, arguing that taxpayer dollars ought to be put toward the city’s crumbling infrastructure instead. And New Orleans Assessor Errol Williams also threw cold water on plans when he suggested it was unlikely he would approve certain property-tax exemptions.

A key concession made in the negotiations in recent months concerned the property tax break to be offered to the hotel. That break now is much less than originally sought. The bill signed Friday stipulates that the new hotel will have a payment in lieu of taxes (or PILOT) deal for only its first three years of operation.

It will pay taxes in its first year of operation using a complicated formula that compares its tax rate to that of other local hotels of comparable size. As it stands now, the hotel in its first year will pay 45% of a base tax rate that is calculated by averaging the per-room taxes paid by the Hilton, Sheraton and Marriott hotels on or just off Canal Street. The rate rises to 65% in the second year, 85% in the third year and full freight in year four and beyond.

That would save the Convention Center hotel a little more than $2 million in taxes it otherwise would have to pay in its first few years of operation, though that is much less generous than, say, the PILOT for the Hyatt Regency next to the Mercedes-Benz Superdome, which is paying only about one-quarter of the taxes it would otherwise have had to pay over a 15-year period through 2025.

Still, there are elements of the Convention Center hotel project that have critics wary. Though it’s not clear to what extent they’ll be included in the new proposal, the previous proposal included a rebate of hotel and sales taxes, a free lease on the land and a funding scheme that would incorporate tax-exempt bonds via a third party.

BGR President and CEO Amy Glovinsky said it’s still unclear if the hotel project will be a good deal for taxpayers.

“Transparency and accountability are critically important here,” Glovinsky said. “To allow time and opportunity for public review, the Convention Center should disclose any revised transaction terms to citizens and policymakers well in advance of approving them.”

She said that BGR still has the same concerns it aired in a report last summer, which argued that the project would require more than $300 million of public money — mainly in the form of tax breaks — and that there was no clear evidence that it would pay that back by stimulating increased convention business and tax revenue for the city.

Others questioning the project include Heywood Sanders, a professor at the University of Texas, San Antonio, and a well-known critic of U.S. taxpayer-subsidized convention centers and hotels generally.

Sanders cites the Morial Convention Center’s own data about out-of-town visitors, which show that its attendance is still running at levels below those in 1999, or even just before Hurricane Katrina.

“If you look at the performance of (the Convention Center), it has yet to reach the level it reached 20 years ago,” in terms of out-of-town visitors, Sanders said. “At the very least that should raise some questions about the competitive nature of the national convention market and (the local facility’s) capacity to compete.”

He said that if the number of national conventions isn’t growing — and it isn’t — it’s unlikely that projections of how much of a boost the new hotel would give to the city’s overall convention business and economy can be met.

The hotel’s supporters counter that the New Orleans center has maintained a top-five position nationally even in the face of tough competition, and with its main competitors, such as Chicago, Atlanta and Dallas, investing in new hotels and facilities, they need to build one to compete.

Tom Morsch, a consultant at Hotel Asset Value Enhancement hired by the Morial Convention Center to evaluate the project last year, said New Orleans has to invest to keep up with its peers.

“It’s a global market for tourism and conventions, and you’re talking about a top-10 market for U.S. conventions,” he said. “You’re not competing with Tulsa, Oklahoma, or El Paso, Texas, with all due respect. You’re competing with Chicago, Dallas, Atlanta, and they’re all building hotels and other amenities.”

Frank Quinn, the general manager of the Riverwalk Marketplace, the Howard Hughes Corp.-owned shopping center at the Convention Center’s downriver end, said he expects that the master plan to develop the unused properties at the center’s upriver end, plus potential riverside walkways and other links for pedestrians, would be a boon to his retailers.

He said the new hotel, which will be built at the upriver end of the ¾-mile-long Convention Center, “will effectively make New Orleans a much more desirable destination for back-to-back conventions.”

The Convention Center currently has a lag time between moving one large convention out and another one in because of the lack of adjacent hotel space, especially at the upriver end. This is felt directly by retailers in the Riverwalk complex, who see peaks and valleys in their business. Quinn said the hotel will help smooth those out.

In any case, the Convention Center’s president and general manager, Michael Sawaya, said there is a long way to go yet. He argued that last summer’s proposal called for a lower public subsidy than comparable projects elsewhere in the country.

“Considering that this is a negotiation and that we have not yet agreed to anything, our expectation is to make a deal that is better than has been proposed (last summer), which will automatically make it better than comparative developments around the U.S.,” he said. “The only vote that has been taken so far is to begin negotiations in earnest.”

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