Agreement on building price fails
A piece of city-owned riverfront property widely considered to be one of the most valuable sites in New Orleans will continue to sit idle after negotiations broke down between the city and a developer who had proposed transforming the 33-story former World Trade Center building into a W Hotel and riverfront apartments.
The city said Wednesday that the developer’s “best and final” offer on the property had been rejected because it “significantly undervalued” the building.
“Negotiations between the city and Gatehouse Capital for the redevelopment of the former World Trade Center site have been unsuccessful,” the statement read. “As arguably the most valued property on the river, this iconic building is prime for redevelopment and should receive fair market value for rent.”
Gatehouse had proposed turning the vacant 1960s building at the foot of Canal and Poydras streets into a $200 million, 245-room W Hotel, with 280 luxury apartments on the upper floors.
The city notified Gatehouse President and CEO Marty Collins that it was terminating talks in an April 22 letter signed by Deputy Mayor Cedric Grant, who also is acting CEO of the New Orleans Building Corp.
Collins did not respond to a request seeking comment.
The board of the NOBC, a public-benefit corporation in charge of developing various pieces of city-owned real estate, voted in October to begin negotiating with Gatehouse after a selection committee composed of Landrieu administration officials picked its proposal as the best of three submitted to redevelop the site.
It was clear then that the building’s value and how much Gatehouse was willing to pay the city for a lease on the property would figure prominently in the negotiations.
In its original proposal, Gatehouse offered to make a single upfront payment of $10 million to the city in return for a 99-year lease. An attorney for the NOBC said that would result in an annual present-value lease payment of only $391,000, which he said was “significantly lower” than the building’s fair market value.
Gatehouse later revised its offer to say it would pay 105 percent of the building’s fair market value, as determined by a third-party appraiser. As an alternative, Collins offered unspecified “periodic ground lease payments and/or potential revenue sharing with the city, rather than a single lump sum prepaid 99-year lease, if preferred.”
According to a source familiar with the negotiations, an appraisal commissioned by the city valued the land and building at $23.5 million. Two appraisals commissioned by Gatehouse set the value at about $10 million.
During the negotiations, Gatehouse changed its offer to an annual payment of $1 million to the city, with a 10 percent increase every five years, the source said. That would add up to about $268 million over a 99-year lease, an amount equal to a present-day value of $25.6 million, or more than 105 percent of the city’s valuation, the source said.
The city said it did not consider Gatehouse’s final offer to represent 105 percent of fair market value.
The city, according to the source, countered with a request for an annual rent payment plus a percentage of the property’s hotel room and retail sales. Based on Gatehouse’s projections of how much revenue the hotel would generate, the city would have stood to receive more than $1.5 billion over the course of the lease, or the equivalent of selling the building for $100 million cash, the source said.
Though negotiations lasted more than six months, the parties met only three times, the source said. The remainder of the discussions were carried out through emails, with Grant, city official Cynthia Connick and attorney Scott Whittaker acting on the city’s behalf.
In addition to financial terms of the lease, talks between the city and Gatehouse had been expected to focus on the company’s commitment to work with disadvantaged business partners on the project. In its proposal, the developer committed to issuing contracts to minority- and women-owned businesses, but it failed to name any. That matter did not prove to be an obstacle during negotiations, the city said.
David Garcia, president of DAG Development, Gatehouse’s local partner on the project, declined to comment.
The city said it will reissue a request for proposals to redevelop the site within 60 days.
The dilapidated X-shaped structure has been vacant since 2010, when the World Trade Center organization, a private economic development group, moved to Canal Place. In 2011, a section of concrete soffits snapped off from one side of the building and fell to the ground. No one was injured.
The last request for proposals was issued in January 2013. It drew three ideas for the site. A five-member selection committee, appointed by Mayor Mitch Landrieu, chose to pursue the Gatehouse proposal.