Tall Order

Can anybody figure out how to make the city's most valuable real estate live up to its promise? Efforts to revive the first World Trade Center keep stalling


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(Corrected and amended Aug. 11, 2010)

In its heyday, the World Trade Center (WTC) at the foot of Canal Street was a bustling destination, its 33 floors teeming with consulates from Latin America, Europe and Asia as well as maritime and other businesses. Designed by architect Edward Durrel Stone, the X-shaped, 404-foot tower — the first world trade center — opened in 1967. Throughout the oil boom of the 1970s and early '80s, an estimated 5,000 workers and visitors walked through the doors at 2 Canal Street every day, according to Gene Schreiber, who managed the nonprofit trade organization WTC Inc. for 30 years before retiring in June.

  Those heady days are long gone. What remains is a largely gutted, once-iconic edifice that has become a hot-button issue among developers, real estate experts and politicos charged with making the site an economic driver once again.

  Proposed uses have varied from converting it to a hotel-office complex to demolishing it altogether. The latest recommendation is to tear it down — but there is no definitive public policy on what to put in its place. Or when.

  Meanwhile, WTC Inc. struggles to rebuild its membership while it negotiates with City Hall for a graceful exit from the tower it built more than four decades ago. The city owns the building and the land beneath it, as well as a nearby parking garage. Mayor Mitch Landrieu is now the fourth mayor to have to figure out how to make what some call New Orleans' most valuable piece of real estate live up to its promise.

  It's a tall order.

From a distance, the WTC still stands as an architectural gem dominating the city's skyline. But today the building is virtually empty except for the posh 29th-floor offices and meeting rooms of WTC Inc. Its vibrant Plimsoll Club, which played host to dignitaries and business leaders from all over the world, moved from the 30th floor of the WTC to the Westin Hotel at Canal Place in March.

  The aging tower has become an albatross, leaving WTC Inc., which built and paid for the structure, in financial straits. At the same time, the cash-strapped city is losing millions of dollars in payments it was promised if the building were redeveloped into a hotel. In fact, the city has not received a dime of revenue from the WTC since 1963, when International Trade Mart (ITM), which preceded WTC Inc., paid $56 for a 56-year lease.

  In the early 1960s, the riverfront at the foot of Canal Street was a shell-covered parking lot surrounded by dilapidated sheds. Locals knew the area as a haven for homeless men and fighting seamen and dockworkers. Mayor Victor Schiro and ITM manager and director Clay Shaw changed all that when they inked a deal in which ITM prepaid the city for a $1-per-year lease that expires in 2019.

  When completed in 1967, the ITM Building — still known to an older generation as "the Trade Mart" — quickly became the city's premier office address. Flanked by Spanish Plaza, which was built at the same time, the ITM building preceded by several decades the Hilton New Orleans Riverside Hotel, the Riverwalk Mall, the Aquarium of the Americas and Woldenberg Park.

  In 1985, ITM merged with International House, another private organization established in 1943 to promote international trade, to form the nonprofit WTC Inc., whose goal remained promoting international trade. Before then, members of ITM and International House mingled at what today is International House Hotel, developed and owned by Sean Cummings.

  The idea of putting a hotel in the tower was first discussed in 1994, when WTC of New Orleans past presidents W. James Amoss Jr. and F. Walker Tucei Jr. approached Mayor Sidney Barthelemy about converting the first 19 floors of the building into a hotel. Barthelemy, who was in the last year of his term, deferred the issue to incoming Mayor Marc Morial.

Construction of the World Trade Center, finished in 1967.
  • Construction of the World Trade Center, finished in 1967.

  Morial's administration and WTC Inc. issued a request for proposals in 1997 to develop a hotel at the site. Bidders leapt at the opportunity, and a proposal by WTC Development LLC, led by longtime bond broker Larry Sisung, was declared the winner. The $70 million deal included a 638-room Crowne Plaza Hotel and redevelopment of 10 floors of office space for use by WTC Inc. The city required the developers to partner with Disadvantaged Business Enterprises (DBEs) — minority or woman-owned businesses historically left out of most public-private deals. The two initial DBE partners working with Sisung eventually grew to 13 and did business as Pelican Holdings LLC and Pelican Ventures LLC.

  Over the next eight years, Sisung's plan morphed into a $200 million, 1,200-room Westin Hotel, but that deal eventually died in 2006. It was never smooth sailing. When the terrorist attacks of Sept. 11, 2001, froze the nation's hospitality sector, the hotel partner pulled out, and with it went a commitment of $20 million in equity.

  Sisung responded by seeking, with the city's help, a Tax Increment Financing District (TIF), which state lawmakers adopted in 2002. The TIF was designed to help create $40 million in equity by capturing the site's 13 percent hotel-motel tax (which all New Orleans hotels pay) and using it to build the developers' equity.

  The TIF drew immediate fire. Competing hotels challenged the TIF in court. In June 2005, the Louisiana Supreme Court labeled it "a misuse of public funds" and declared the TIF District unconstitutional. Sisung, who says his development group "spent millions" in its attempts to redevelop the building, insists the TIF was necessary because of the effect the 9/11 attacks had on lenders who invest in hotels.

  Sisung's deal had other problems as well.

  In 2003, new Mayor Ray Nagin put the brakes on Sisung's deal, claiming its benefits to the city were minimal. He directed Sean Cummings, whom Nagin appointed to lead the New Orleans Building Corp. (which manages some of the city's most valuable real estate holdings), to revamp the project. Cummings is credited with sweetening the deal for the city by demanding the developer repay $40 million in projected hotel-motel taxes, plus a $24 million up-front payment.

  But even that didn't quell critics of the TIF. Several times between 2003 and 2009, the Bureau of Governmental Research (BGR) and the Metropolitan Crime Commission (MCC) blasted the project. BGR noted that the TIF was unfair to existing hotels, all of which have to pay the 13 percent tax, and claimed it would cannibalize guests from other hotels. The MCC issued a scathing report in 2003, stating, "We note that this deal, which was assembled as almost a fait accompli under the prior (Morial) administration, certainly has the appearance of political cronyism."

  Who were those alleged cronies?

  The minority partners, who would own 50 percent of the deal, included a who's who of local African-American power brokers:

A napkin from the popular Top of the Mart rotating bar shows the sights visitors could see from the bar crowning the WTC.
  • A napkin from the popular Top of the Mart rotating bar shows the sights visitors could see from the bar crowning the WTC.

  • Doug Evans, who at the time chaired the New Orleans Aviation Board and is the long-time president of the Central City-based political organization BOLD. Evans is a close ally of former City Councilman Jim Singleton — a Morial foe while on the council — and former 1st Municipal District Assessor Kenneth Carter, another BOLD leader. Carter lost a bid for mayor to Morial in 1994. Carter's daughter, State Sen. Karen Carter Peterson, D-New Orleans, was a state representative in 2002 — and she co-sponsored the bill that created the TIF District for the WTC building conversion.

  • Former 1st Municipal District Assessor Darren Mire, another BOLD ally.

  • Dale Valdery, a cousin of then-state Sen. Jon Johnson, who now is District E's city councilman.

  • Dr. Angela Barthe, who now is Councilman Johnson's spouse. As a state senator, Johnson voted for the TIF District when he was engaged to Barthe.

  Hurricane Katrina, which struck in August 2005, dealt a deathblow to the Sisung proposal. He pulled out six months later.

  A year after that, in March 2007, the Nagin Administration received proposals from eight teams of developers which were given only 30 days to submit their plans and 120 days to secure financing — a deadline that foreshadowed Nagin's accelerated but doomed attempt to redevelop Municipal Auditorium. As in the auditorium deal, critics blasted the timetable, saying it shut out potential national investors and hotel operators.

  Project finalists included Darryl Berger, Pres Kabacoff, and Patrick Quinn and his business partner Mickey Palmer. Palmer and Quinn were then the largest independent owners of boutique hotels in the city. Berger's team proposed a Hard Rock Hotel & Resort. Other proposals came from a team led by local hoteliers and developers Henry Lambert and Carey Bond of RCB Builders.

  Nagin's administration chose Full Spectrum of New York, led by Carlton Brown, as the winning team. Full Spectrum proposed to develop an Indigo Hotel by InterContinental Hotels with 300 rooms as well as residential units, retail outlets and a cultural museum. Full Spectrum initially sidestepped the 90-day requirement for signing a lease by getting Nagin and the City Council to approve extensions. The 800-page lease gave Full Spectrum a 99-year lease on the building, but by August 2008 the developer pulled out of the project after failing to secure financing.

  In hindsight, Berger says losing the 2007 bid for WTC redevelopment was "fortuitous" in the present economic climate. He and his partners last year bought the Westin Hotel at Canal Place, where the Plimsoll Club has relocated.

An old postcard shows the WTC and the Rivergate Convention Center (lower left) dominating the Central Business District at the foot of Canal Street. The Rivergate opened in September 1968, about a year after the WTC, and was demolished in 1995 to make room for Harrah's Casino.
  • An old postcard shows the WTC and the Rivergate Convention Center (lower left) dominating the Central Business District at the foot of Canal Street. The Rivergate opened in September 1968, about a year after the WTC, and was demolished in 1995 to make room for Harrah's Casino.

  "We don't need 400 more hotel rooms there," Berger says. "We need a people mover, something that will flow 4,000 people attending conventions into the city's core tourism areas."

  Did politics foul the deal?

  "Any time you have a project that involves the city through a quasi-public agency like the NOBC and the interests of the World Trade Center organization, no matter how the deal is or has been structured, politics is going to play a role," says Ivan Miestchovich, director of the University of New Orleans Institute of Economic Development and Real Estate Research. "You're just dealing with entities that never figured out how to play together in the same sandbox."

Mayor Mitch Landrieu and the New Orleans City Council face a long list of daunting issues, including ongoing federal corruption investigations, an estimated $67 million budget hole (left by Nagin) and the ongoing oil disaster in the Gulf of Mexico. What to do with the WTC building and site is just one more dilemma. At potential risk are millions in public dollars and a building worth less than the land on which it sits.

  "The World Trade Center building has long been an underperforming city asset," Ryan Berni, Landrieu's press secretary, said in a statement prepared in response to Gambit's inquiries. "Mayor Landrieu has long appreciated the history of the building, the world's first world trade center, and its strategic location on the Mississippi River. [Landrieu is] currently evaluating a number of scenarios regarding the building itself."

  A hotel doesn't appear to be a viable option. Hotel occupancy in 2005, right before Hurricane Katrina, averaged 73 percent in New Orleans, with room rates comparable to those in New York and San Francisco, says John Williams, director of the Lester E. Kabacoff School of Hotel, Restaurant and Tourism Administration at UNO. But for all of 2009, average occupancy was at 62 percent for the city, and room rates were down.

  Miestchovich says by the end of May this year, occupancy levels in the city dipped below 50 percent.

  The value of the site is also in question.

WTC Inc. has hired Dominik Knoll to rejuvenate the flagging trade organization by bringing younger members and new ideas.
  • WTC Inc. has hired Dominik Knoll to rejuvenate the flagging trade organization by bringing younger members and new ideas.

  "All of the appraisals so far have been done with vested interests," says City Councilwoman-at-large Jacquelyn Clarkson, a licensed Realtor. "I have never seen a World Trade Center (building redevelopment) lease that benefited my city. An independent appraisal has to be done, including the building or not. We have to compensate the encumbrances (WTC Inc.'s leasehold), and consider ... the highest and best use of the property."

  The best use of the property may not include the tower, which sits on what has been called the single-most valuable site in the city. Williams, a UNO hospitality expert who consulted on the move of the Plimsoll Club to the Westin Hotel, says the WTC building is deteriorating. It has moisture intrusion problems and floors four through 14 were gutted for a hotel that never materialized. "It's an embarrassment," he says.

  Cummings, who so far has retained his position as NOBC executive director under Landrieu, says seven years of negotiating to convert the building have convinced him that demolition is the best way to go. "The reality is that the building is functionally obsolete at this time and it makes sense to clear the site rather than ... maintaining a vacant building and mothball it," he says.

  WTC Inc.'s strongest bargaining chip for keeping the structure is that its original lease doesn't end until 2019. Negotiations to buy out WTC Inc. and remove the group from the building are on hold until Landrieu tackles the issue, Cummings says.

  The site also dovetails with the NOBC-steered "Reinventing the Crescent" project, a $300 million, six-mile swath of proposed redevelopment along the riverfront. The tower also potentially stands in the way of a $400 million proposal for riverfront development designed by the Strategic Hospitality Task Force, a group Landrieu formed when he was lieutenant governor with a mandate to boost the hospitality industry in New Orleans. Berger co-chaired the task force.

  While $30 million of the first phase of the Reinventing the Crescent plan is funded and slated for completion in 2011, Cummings has proposed using proceeds from selling the WTC site to kick-start additional development of a riverfront park. For now, no funding exists for the remainder of the project or for the master plan devised by the hospitality task force.

The WTC building is a prominent feature of the Canal Street riverfront, but its fate is uncertain. - PHOTO COURTESY OF THE NEW ORLEANS METROPOLITAN CONVENTION AND VISITORS BUREAU
  • Photo courtesy of the New Orleans Metropolitan Convention and Visitors Bureau
  • The WTC building is a prominent feature of the Canal Street riverfront, but its fate is uncertain.

  When the riverfront park project gained the backing of city leaders, Cummings faced fire for a potential conflict of interest because he and his father, John Cummings III, own numerous properties in the Central Business District, the Warehouse District and downriver neighborhoods. Neighborhood organizations questioned whether the park plan would unfairly benefit father and son. The Louisiana Board of Ethics has cleared Sean Cummings of any conflict of interest in the Reinventing the Crescent Plan.

How did the city, WTC Inc. and developers miss landing a redevelopment deal for one of the city's iconic riverfront properties?

  "Hindsight is 20-20," real estate consultant Arthur Sterbcow says. "[Between 1995 and 2005] residential and commercial values and the hospitality sectors were booming. Developers were looking for projects and [were] flush with cash." After Hurricane Katrina, billions of federal dollars — primarily through low-interest bonds issued by the Louisiana Bond Commission — were available for new commercial projects, and investors were again eyeing New Orleans for opportunities. "In that context and in that timeline ... there would be a hotel there today," Sterbcow says.

  Another issue left to be resolved is how much it will cost the city to remove the nonprofit trade organization from the building.

  WTC Inc. President Connie Howard Willems, a partner in the law firm McGlinchey Stafford, says her group seeks $5 million in compensation for preparing the building for hotel conversion and $1.2 million for the remaining nine years on its lease. Cummings' last proposal was $1 million for the WTC Inc.'s costs related to redevelopment preparations and $1.2 million to buy out the organization's leasehold. Cummings says the money that WTC Inc. put into the building for hotel development and lost office lease revenues pales in comparison to the decades the building generated zero tax dollars for the city.

  Cummings says a 2009 appraisal valued the three-acre WTC site at $16 million to $24 million — and the tower at only $10 million. No plans have mentioned demolishing the WTC's garage, which sits adjacent to the Hilton New Orleans Riverside Hotel and can be mistaken for part of the hotel complex. The garage's value is incorporated into projections of the site's worth, excluding the tower.

  A BGR report last year recommended the city sell the site.

  "Although past efforts have suffered from a variety of economic, financial, and political problems ... the long delays raise questions about the city's underlying approach to redevelopment," the BGR report states. It questions whether WTC Inc. warrants taxpayer subsidy, and suggests that if it does, funding should come from a direct public revenue stream and not through a "convoluted real estate deal."

  Cummings sees the building put into civic use with the creation of an iconic structure, a monument that would serve as a catalyst to move visitors from the Ernest N. Morial Convention Center and Warehouse District hotels to core tourism corridors along Canal and Poydras streets and the French Quarter.

  "In the 19th century, St. Louis Cathedral was New Orleans' preeminent architectural icon," Cummings says. "In the 20th century, it was the Superdome." As the city nears its 300-year anniversary, he sees a "21st century iconic civic monument at the site of the WTC building."

  Kabacoff has his doubts about iconic architecture replacing the building. "Something akin to the Sydney Opera House or the Eiffel Tower certainly creates intrinsic value for a city," he says, "but you don't tear down the World Trade Center building until you have the funding for that architecture."

  Berger and Kabacoff looked at the deal again in 2009. Both have developed hotels locally and nationally, and both maintain that without heavy public subsidies, no project is viable at the site.

  Berger, co-chairman of the Strategic Hospitality Task Force, says the task force's plan "implies" demolition of the WTC building along with a renovated ferry terminal and expanded Spanish Plaza. But, he says, the task force has not expressly recommended tearing down the structure. "What we did is take the blinders off and look [at the entire riverfront area] holistically" to determine how to boost tourism, Berger says.

  A footprint of the task force plan shows the WTC site as a new Tricentennial Plaza Welcome Center. The plan also calls for development on the huge parking lot owned by Hilton Corp. between the Hilton and the convention center.

With or without the WTC tower, the nonprofit WTC Inc. faces problems. It now relies on dozens of volunteer consuls to represent foreign nations (Willems represents the Netherlands), and its revenues, which once came from leases for WTC office space, are derived almost entirely from membership dues (membership is 1,600, down from 2,000) and grants from corporate members. It must find other ways to fund its business seminars, traveling trade missions and trade conferences, once held at the WTC, to support its stated mission to foster "wealth and jobs in Louisiana through international trade, port activities and allied activities."

  Willems, who met with Landrieu during his transition, declined to discuss the organization's financial situation in detail, though she says it needs money — but the Plimsoll Club is operating in the black. She notes that most world trade centers are directly tied to and financed by port authorities, chambers of commerce or city, state or national economic development agencies. New Orleans' group, however, has always generated its funds through memberships and office leases.

  To reinvigorate membership, WTC Inc. in May hired 27-year-old Dominik Knoll of Italy as its CEO, with a primary mandate to boost membership. He is searching for new, younger and more diverse members. "I'm going to reach out to the younger entrepreneurs, the campuses, the small start-up companies, locally and regionally, focusing on technology, and new media ... connecting them with international businesses. I'm targeting the migration of so many talented young people who came to New Orleans after Katrina," he says.

  The WTC Inc.'s board of directors has made no official decision to vacate the building until negotiations resume, Willems says. "The city should recognize our economic impact today" and provide funding to bolster programs, missions and seminars promoting international trade, she says. "We would like to see the building in use, but we accept that development at this point is unlikely. We're focusing on the buyout, and we'll let the city decide the building's fate."



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