Posted on: October 1 2014 | Posted in: Latest NewsBy Katherine Sayre, NOLA.com | The Times-Picayune
The City of New Orleans is launching another effort to bring the vacant former World Trade Center building, sitting on the city's prime riverfront real estate, back into use.
Since the late 1990s, negotiations with developers over long-term leases for the 33-story tower have failed three times. Most recently, after a months-long selection process, the city broke off talks in April with Gatehouse Capital Corp., which had hopes of turning the building into apartments and a hotel.
Mayor Mitch Landrieu's administration this week issued a "request for qualifications" which begins a two-step process to pick a new developer.
On Wednesday, Deputy Mayor Cedric Grant said the two-step process -- a standard in the private sector -- will give city leaders a chance to find developers who are serious and capable.
"I think we needed to create a much more private sector-driven process," Grant said. "This is generally what the private sector does in development, engages in the pre-qualification process and vetting who is really there and capable and then put those people that are most likely to be good respondents to a much more rigorous response process. We're also going to do some outside marketing."
"This is going to track very much with what most municipalities do now in redevelopment," Grant said. "It is going to track very close to what the marketplace and private sector people are accustomed to seeing in relation to responding to development opportunities, and we'll have what I believe to be far superior responses."
In the document issued this week, the city said it is looking for ideas to redevelop the office tower as "a first class commercial and/ or mixed-use project complementary to the adjacent land uses, and may include a hotel commensurate with the offerings of a four-star property, luxury residential, retail, or other professional office use, with entertainment components and other related amenities."
The document does not mention demolishing the building as an option.
The city will evaluate development teams' history, financial capacity and qualifications and select which companies can move on to the second round, a formal "request for proposals" phase, which would delve into the details of how the property would be used.
The deadline for the first round is Nov. 14. The city expects to select which developers can move on by Dec. 15.
The request for proposals will be released to selected developers Jan. 2. Those developers would then have until Feb. 16 to submit their specific proposals.
Before negotiations broke off over money, Gatehouse had planned to spend $190 million to renovate the tower -- which sits at the foot of Canal Street -- into apartments and a W Hotel. Gatehouse offered the city a $10 million upfront payment for a 99-year lease, while the city considered that far below the value of the property.
Gatehouse later agreed to pay the city 105 percent of the fair market value of the WTC building and land as determined by an independent appraisal, according to a source close to the negotiations. During negotiations, Gatehouse also increased its offer to $1 million per year in initial base rent with 10 percent escalations every five years, totaling $268 million over the 99-year lease.
The city countered with an offer that exceeded $1.5 billion in total lease payments with an upfront value over $100 million, according to the source,which essentially ended the negotiations. City officials insisted Gatehouse largely undervalued the property.
Ivan J. Miestchovich, University of New Orleans professor and director of the Institute for Economic Development & Real Estate Research, said over the years, through three mayoral administrations, the city has received several proposals for redeveloping the World Trade Center. But instead, the building has been allowed to sit vacant, generating no revenue and deteriorating.
Miestchovich said the city has shown "unrealistic expectations" in negotiations, including a large upfront payment. "That may be in their best interest, but it may not be in the best interest of the developers coming into the property who are going to be taking on all of the risk," he said.
At this point, developers are likely questioning whether to return to the city's selection process, considering there are other real estate opportunities across the country, he said. "We're not the only fish in the sea here," he said.
A two-step selection that begins with a qualification round is standard in both the public and private sectors, he said, and should help streamline the process.
Gatehouse won out over two other groups. James H. Burch LLC of Clifton, Va. proposed turning it into a mixed-used building with apartments and a Valencia Group hotel. Tricentennial Consortium, a coalition of leaders of New Orleans' major tourism organizations, wanted to demolish the 1960s building and create a public space with an "iconic tower" of some kind, similar to the Gateway Arch in St. Louis.
"It's really beyond the time that the city ought to be seeing something happening with that particular building," Miestchovich said. "They need to get it done and get it done right and it does turn out to be a win-win for everybody."
Developers will be evaluated in five key areas:
- Quality of overall application (15 percent)
- Development team's past projects and performance (20 percent)
- Relevant development and construction experience (25 percent)
- Financial capability (35 percent)
- Commitment to goal of disadvantaged business enterprise program (5 percent)