A long-vacant piece of city-owned property widely considered to be one of the most valuable in New Orleans may soon be transformed into a W Hotel and riverfront apartments, now that a selection committee has chosen Gatehouse Capital Corp. as their favorite to take over the former World Trade Center Building at the foot of Canal Street.
The panel will present its recommendation in a few weeks to the New Orleans Building Corp., the city agency that would negotiate a lease with the developer.
Gatehouse scored the highest in the committee’s evaluation despite not listing the names of the minority- and women-owned businesses it intends to contract with and making an offer on the building that is “significantly lower” than fair market value, two deficiencies noted by panel members in the selection meeting Tuesday. Those matters will be addressed during lease negotiations, Chief Administrative Officer Andy Kopplin said.
“They’ve got a solid financial proposal, a very good design that is feasible,” Kopplin said.
But Kopplin said he was “wholly dissatisfied” with Gatehouse’s proposed lease payment to the city and its response to the city’s disadvantaged business enterprise requirement.
“While I do believe that their proposal warranted the strongest endorsement of this committee — they were my No. 1-ranked proposer — I do not believe we ought to go forward unless those two issues that are critically important to the city are addressed.”
Gatehouse Capital Corp. has proposed turning the 33-story building at Canal and Poydras streets into a 245-room W Hotel with rental apartments on the upper floors.
The five-member committee, appointed by Mayor Mitch Landrieu, weighed three proposals. A plan from James H. Burch LLC that also called for turning the building into a hotel and residential apartments came in second with 342 points out of a possible 500. Tricentennial Consortium, a group of tourism leaders that proposed demolishing the building and replacing it with a public park, came in last place with a score of 308.
Gatehouse received a score of 405.
The panel scored and ranked each proposal based on the following: the developer’s performance history and financial capacity, 20 percent each; the project’s description, 35 percent; and its financial feasibility, 25 percent.
“At the end of the day what we are trying to do here is get a return on investment,” Deputy Mayor Cedric Grant said. “At the end of the day what we wanted to know is can you get it done, have you gotten something like this done and will you get it done if we negotiate a reasonable lease for market value rents.”
Two major revitalization schemes for the X-shaped structure in the past decade have ended in failure.
Gatehouse provided the greatest evidence that it would be able to pay for its project and see it through to completion, said Scott Whittaker, a lawyer with Stone Pigman Walther Wittmann, the law firm advising the committee.
Gatehouse presented the city with a letter of interest from Holliday Fenoglio Fowler indicating the real estate investor’s interest in raising debt for or investing equity in the property. Gatehouse also presented letters of intent from a company willing to transfer state and federal historic tax credits.
A financing commitment presented by the Burch group was vague, Whittaker said, leaving out information about how much equity financing an investor planned to contribute. Meanwhile, the Tricentennial Consortium did not include any letters of interest to indicate an ability to finance its $165 million proposal, Whittaker said.
As the panel discussed the proposals, it was clear Tricentennial had the smallest shot at winning the rights to the building.
The alliance of tourism leaders proposed demolishing the building and putting a park and an undetermined “iconic structure” in its place as part of a larger plan to redevelop the riverfront by the city’s 300th birthday in 2018. The proposal began to fall apart this summer after Gov. Bobby Jindal vetoed a measure that served as its financial and legal underpinnings.
“I believe at the end of the day what they presented to us was a way to move forward on the civic component of this project and not a specific plan,” said committee member Cindy Connick, executive director of the Canal Street Development Corp. “For me it came down to what’s financially feasible to do. And so my evaluation is going to heavily weigh these proposals based on the financial feasibility and the financial capacity of (Burch and Gatehouse).”
Kopplin said his heart was with creating Tricentennial’s “big vision” for the site, but he couldn’t make a recommendation in favor of that project because it lacked funding.
“I think it is hard to make a selection of a project that would eliminate one source of financing and one structure in favor of another site for which we don’t have the resources identified,” Koppin said.
Still, panel members went out of their way to praise the Tricentennial Consortium, whose members include the leaders of agencies including the Audubon Institute and New Orleans Tourism Marketing Corp.
Although the committee selected Gatehouse, members spoke at length about incorporating Tricentennial’s vision into some overall city-led plan to redevelop the land surrounding the former World Trade Center into a type of inviting, unified civic space, perhaps using money from the winning developer.
In a statement, Tricentennial asked that the city “irrevocably consider the public space, and its demand generation potential, as critical components to the redevelopment of the WTC site.”
“If properly meshed and integrated, we can create a tremendous growth catalyst to jobs and our economy by building a demand-generator in addition to redeveloping the building.”
Although both Gatehouse and Burch proposed turning the building into a hotel and residential apartments, the committee was told that the Gatehouse plan included “realistic” rental rates based on present market conditions. The Burch plan was “quite optimistic” in that regard, said Whittaker, citing a report from a residential consultant who evaluated the projects. Whittaker said consultants believed the Burch team may have overestimated the amount it could command for rent because residential properties in the proposal were located on the building’s lower floors, which don’t have the river views found on the upper levels. The Burch team’s estimated expenses also appeared too low, Whittaker said, citing the consultant’s report.
The Gatehouse plan was not perfect. Committee members said it had two shortcomings. First, the developer’s commitment to dedicate at least 35 percent of its contract work to DBEs did not identify the certified disadvantaged businesses with which it would partner. The omission was not enough to declare the developer noncompliant with the DBE requirement, but the committee said it would press Gatehouse to make formal commitments with one or more disadvantaged businesses before a lease agreement is finalized.
During negotiations, the city also will try to command a higher lease payment from Gatehouse. In its original proposal, Gatehouse offered to make one upfront payment of $10 million to the New Orleans Building Corp. That would work out to an annual lease payment of $391,000 based on a present value calculation, an amount “significantly lower” than fair market value, Whittaker said. A higher payment from Gatehouse should not negatively impact the project’s profitability, Whittaker said.
“If that was not substantially changed, I would urge that NOBC not consummate a lease,” Kopplin said.
David Garcia, whose company DAG Development is the local partner on the Gatehouse plan, said his team is ready to begin negotiations and is prepared to pay the city a fair market value for the building as determined by an independent appraiser. Kopplin said the appraisal of the site shouldn’t just consider the run down building, but also the valuable land around it.
“This is as valuable a piece of property as the city owns,” Kopplin said. “Our interest in it would be to have a good, strong lease agreement with the developer.”
Lease negotiations could take months, said Grant, though he is hopeful a deal can be reached before the end of the year.
Construction on the project would take two years to complete, Garcia said.
In addition to Grant, Connick and Kopplin, panel members included Jeffrey Hebert, executive director of the New Orleans Redevelopment Authority and William Gilchrist, the city’s director of place-based planning.
Copyright © 2011, Capital City Press LLC • 7290 Bluebonnet Blvd., Baton Rouge, LA 70810 • All Rights Reserved