Mayor Mitch Landrieu’s administration has never been shy about expressing what it hoped to gain from leasing the former World Trade Center building for redevelopment: money. And a lot of it.
When a previous developer, after more than six months of negotiating, refused to raise his financial offer for rights to the riverfront site, he was told to take a walk, even though it meant the city would have to start the long process of finding someone to revamp the dilapidated building all over again.
“One of the things that this process is going to require is a review, by us, not just of the development benefits — what type of development we want to see on the riverfront,” Chief Administrative Officer Andy Kopplin said last month before the latest winner was chosen. “There’s the bottom-line number ... which is how much money does the city get.”
It may have raised a few eyebrows, then, when the development team of Carpenter Development LLC and Woodward Design + Build was picked last week over four other applicants to convert the vacant 1960s office tower into a hotel and condominiums.
The reason: Carpenter/Woodward offered to pay the city $29 million to $45 million less than its rivals in fixed rent over a 99-year lease.
Fixed rent includes any up-front and guaranteed monthly payments. It is the amount the city is assured of making on the deal and is not subject to things like market conditions, condominium sales or the performance of the hotel or other on-site attractions.
According to an analysis by Jones Lang LaSalle, a real estate services firm that served as a consultant to the selection committee that made the decision, Carpenter’s fixed-rent offer amounts to $58.4 million, in 2015 dollars, to the New Orleans Building Corp., the city agency that acts as landlord for the building. The other bidders offered much more.
The Carpenter team has proposed converting the Edward Durell Stone-designed tower into a 350-room Four Seasons hotel with 76 hotel-serviced condominiums.
The city can still negotiate the final lease agreement, but in choosing the Carpenter offer over those with higher fixed-dollar values, the city is betting that other portions of Carpenter’s proposal — property, hotel and sales tax payments — will make up for the lower guaranteed rent and make the Carpenter offer the best deal in the long run.
“The way we’re looking at this, and what we’ve always done in the Landrieu administration, is try to take the long view of things,” Kopplin said before the selection committee made its choice. “I think our challenge is what is the best for the city of New Orleans, not for today, not for tomorrow but ... what is the long-term best proposal for the city.”
The thinking is that the Four Seasons, one of the most prestigious luxury hotel brands in the world, will command higher room rates and attract more of the type of well-heeled guests who will spend big while in town, ultimately driving more money into city coffers.
“The best deal is not necessarily who pays the most money up-front,” said Michael Siegel, executive vice president of Corporate Realty Inc.
Other factors like upside potential, the quality of the development team, the likelihood of the project’s success and subjective measures such as what a project will do for a place’s image can also factor into a deal like this one, said Siegel, who is not involved in the WTC project.
Four Seasons Hotels & Resorts is one of the world’s top hotel brands, included in what’s known as the “luxury” class of lodging. That category also includes Fairmont, Loews, Ritz-Carlton and W hotels, according to PKF Hospitality Research.
The revenue that hotels in that category make per room climbed by 8.3 percent from 2010 to 2014, the highest growth of any hotel category, according to PKF. It is expected to grow by another 3.2 percent from 2015 through 2019.
The Jones Lang LaSalle analysis put Carpenter ahead of its competitors by at least $25 million when fixed-rent payments are combined with the taxes the hotel would pay over the 99-year period of a lease.
The developers’ proposal to invest $364 million into the highly prized site at the foot of Canal Street, nearly $100 million more than its nearest competitor, also means that it would likely generate more money for the city’s general fund through property taxes. As evaluated by Jones Lang, the Four Seasons project would pay 39 percent more in property taxes, 13 percent more in hotel occupancy taxes and 8.5 percent more in general sales taxes than its nearest competitor over the course of its lease.
“When we look at the economic benefit to the city in terms of revenues for today, tomorrow and the future, it is going to be those lease payments to the NOBC, the rents and all those things,” Kopplin said. “But it’s also going to be the direct tax revenues that come to us. And so we ought to factor in and count both of those.”
The city is expected to finalize a lease agreement with Carpenter/Woodward on Monday, in time for it to be approved by the New Orleans Building Corp. board at a meeting Tuesday. The agreement is expected to go before the City Council in early April.