Proposed tax breaks raise questions as bid to build hotel near Morial center continues

By Richard Thompson

June 17, 2018

Ernest N. Morial Convention Center officials are back at the negotiating table, hoping to finally realize their dream of building a high-rise anchor hotel and, in time, a retail and entertainment complex on a vacant 47-acre tract the center purchased nearly two decades ago.

But as they do so, they are having to deal with questions about the scores of millions of dollars in tax breaks and incentives that are being sought by the development team, as well as the role of one member of the team.

“Everybody wants this to happen, and everyone agrees that it’s a project that needs to happen,” said Michael Sawaya, who took over this year as president and general manager of the Convention Center. “It’s in the best interests of not only the Convention Center, but the city as a whole.”

“This opportunity doesn’t exist like this anywhere else,” he added, “and it’s a transformative project.”

The proposed $557.5 million, 1,200-room Omni Hotel would include at least 150,000 square feet of ballroom and meeting space as well as ground-level retail space on an 8.1-acre site at the upriver end of the giant exhibition hall. It would be connected to the giant exhibition hall by a bridge over Henderson Street.

But despite its potential significance, the long-discussed project is likely to come at a high cost to the Convention Center and other local agencies, at least if the development team — which includes local businessmen Darryl Berger and Joe Jaeger, as well as Matthews Southwest Hospitality, a Texas-based real estate firm, and Preston Hollow Capital, a Texas-based finance company — gets its way.

Jaeger, the biggest hotel owner in New Orleans, defended his group’s proposal, describing the new hotel as “a difficult project” that will ultimately end up back in public hands.

“In reality, this is a Convention Center hotel that will ultimately be owned by the Convention Center,” he said.

To help cover the hotel’s cost, the developers are seeking $41 million in cash from the Convention Center, as well as a complete rebate of a 10 percent hotel occupancy tax and a 4 percent sales tax on all hotel revenue from sources other than room rentals until the hotel’s $516.5 million 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.

That rebate would be provided by four recipients of the tax proceeds: the Convention Center; the Louisiana Stadium and Exposition District, which oversees the Mercedes-Benz Superdome and other sports and meeting facilities; New Orleans & Co., the city’s recently renamed convention and visitors bureau; and the Regional Transit Authority.

The reshuffling would require the governor’s and Legislature’s approval.

The hotel is projected to generate about $44 million in food and beverage sales in its first year, making that rebate worth almost $1.8 million. The source of that money is still being discussed, Sawaya said.

The group is also seeking a break on property taxes, under an arrangement that will see the hotel owned by a nonprofit called Provident Resources Group Inc.

After the project’s debt is paid off, decades from now, the board that governs the Morial Convention Center could take control of the hotel, or it could lease or sell it and retain the full proceeds.

Questions raised

The proposed tax breaks could attract considerable scrutiny. The nonpartisan Bureau of Governmental Research has already questioned whether it makes sense for the Convention Center to be investing tens of millions of tax dollars in this project when the city has billions of dollars in pressing infrastructure needs, most prominently at the Sewerage & Water Board.

Lawmakers also see Jaeger’s recent opposition to a proposal from Harrah’s Casino for a new 24-story hotel as a potentially tense issue. Harrah’s was promising to spend $350 million on the project in return for a 30-year extension of the operating license for its casino. Jaeger led the opposition, arguing that the state should be looking for a better deal at a time when it faces severe financial problems.

Now he is part of a development team seeking millions of dollars in tax breaks for a hotel project less than a mile away.

In an interview, Rep. Kenny Havard, a St. Francisville Republican who supported the Harrah’s bill, called the development group’s request for tax breaks “hypocritical” and suggested Jaeger’s opposition to the Harrah’s deal was self-serving.

“That’s what this deal was about,” Havard said. “They didn’t want Harrah’s to build a new hotel that was going to cut into their rooms. That’s the bottom line.”

“It doesn’t take a rocket scientist to figure that one out,” he added.

But in an interview, Jaeger dismissed the criticism, along with any comparisons to other hotel projects like Harrah’s or the Four Seasons hotel at the foot of Canal Street, saying they’re “totally different projects, different concepts,” and are like comparing “bananas and watermelon and grapes.”

For example, the long-awaited $460 million Four Seasons Hotel and condos project is expected to receive roughly $60 million in historic tax credits for redeveloping the former World Trade Center building, a 33-floor 1960s office tower. It’s expected to generate $15 million in annual property and hotel tax revenue for the city and state.

“You can’t take them and look at them as hotels,” Jaeger said. “You have to look at them as developments, and at the difference between the developments.”

According to Jaeger, Harrah’s proposal to build a hotel was aimed at attracting more gamblers to its casino, and the developers behind the 341-room Four Seasons, one of the world’s most prestigious brands, will benefit from federal and state historic renovation tax credits that are not available for the Convention Center project, since it would be built from the ground up.

“You can’t throw it all in the same pot,” he said. “Every development needs to stand on its own and be evaluated on its own.”

Convention Center officials also say the incentives outlined in the development group’s proposal are simply a starting point.

“Everything’s negotiable,” Sawaya said. “This is a business deal.”

Checking the boxes

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.

Earlier this year, the center sought formal requests from potential developers, and a group including Jaeger and Berger, the same two local businessman who had led a previously stalled effort, submitted the only response.

Those earlier talks were scrapped after negotiations dragged on for nearly two years. Now, rather than seeking one development team to oversee the whole projected multi-phase development that tourism leaders envisage, the Convention Center board is dividing up the project by separating the hotel, seen as the most important part of the plan, from the other elements — entertainment, retail, perhaps residential — in order to keep the hotel from getting bogged down.

Convention Center officials voted last month to begin negotiations over the latest proposal. Assuming a deal is reached, likely this summer, the framework will be presented to the center’s board for its approval.

The project has long had the support of many of the city’s business and hospitality leaders, who have sought 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.

Perhaps most important, officials say, is that it would provide a huge bloc of rooms a short walk from the center, providing a key piece of a broader vision to bring much more foot traffic to the upriver end of the giant exhibition hall, rather than having it all concentrated around Poydras and Canal streets.

“A large, connected hotel is a necessity for both the Convention Center itself as well as the city overall,” said Michael Hecht, president and CEO of Greater New Orleans Inc., a regional economic development group.

“The Convention Center needs the hotel to compete with facilities in places like San Francisco, Orlando and even Nashville,” he said. “The city needs the additional capacity to both accommodate large events, like the Super Bowl, and to further drive needed tax revenue.”

But despite the intense review that the project will likely receive in the coming months, Contention Center officials are optimistic about getting the deal done.

“This is something that we need,” Sawaya said. “We’re supposed to develop facilities that have the most impact for our community. That’s what we do. That’s the business that we’re in: creating economic impact and jobs, and all of those things that this does. It checks all the boxes.”

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