The recent sale of 2537 Tulane Avenue for $5.6 million set a record highest price for property closest to the new $2 billion hospital development, so Citybusiness reached out to Louisiana Commercial Realty broker Robert Hand to discuss the trend on Tulane Avenue apartments and hotels:
Commercial broker Robert Hand, president of Louisiana Commercial Realty, said that he feels either project would do extremely well in that area due to high demand for those services.
“There is a shortage of moderately-priced hotels in the area,” he said. “Rooms at $100 to $125 a night would do well and pull (clients) from the French Quarter tourism market as well as the new hospitals. There really isn’t anything decent on that side of (Interstate 10).”
“There’s still a high demand for apartments as well,” he added. “It is still very difficult to find a two-bedroom apartment for under $1,500 in the city.”
Feil purchased the 1.6-acre site from the family that owns Dixie Beer for $5.6 million in April. He also bought the property at 2501 Tulane Ave. for $740,000 in May. Joe’s Lawnmower Shop once occupied the location and is in the same block as the warehouse. Jeffrey Feil, CEO of the Feil Organization, plans to build either an extended-stay hotel or a mixed-use development near the $1.1 billion University Medical Center and immediately adjacent to the nearly-completed Veterans Affairs Hospital, according to a demolition request application filed with the city.
Proposed Tulane Avenue Apartment
The documents show two different plans for the site. The five-story hotel would offer around 59,500 square feet of space with 88 rooms. Rooms would be located on the top four floors, and sizes would vary from 356 to 408 square feet. There would be 139 parking spaces, with 115 located off-street and the remaining to be on the street. Designs show that cars will enter the development on South Rocheblave and South Dorgenois with the main pedestrian entrance fronting Tulane Avenue. A second set of plans shows a 5-story, mixed-use development that would offer 20,000 square feet of retail space on the first floor to go along with 54 covered parking spaces for residents. There would be 40 spaces for retail customers.
The second, third and fourth floors would be 35,000 square feet each and have 96 apartments at 830 square feet each. Designs show that the fifth floor would be an open-air space for residents. There would be a total of 96 parking spaces for residents. The application filed with the city indicates that PPS Contractors is handling demolition of the 49,000 square-foot warehouse. The work is valued at $200,000, according to the application, which was signed on Sept. 21. Designs show that Thibodaux-based Duplantis Design Group is the architect for the project. Representatives of the Feil Organization could not be reached for comment.
The city's criteria for building a hotel on the New Orleans airport north terminal property will shock you. The hotel is part of the $800 million new terminal on the massive stretch of land on the north end near Veterans Boulevard. That will be good news for the tourism industry which is a powerful economic driver to the area, witnessed by last year's 10.6 million passengers, up 9.1% from the previous year. The new development will demolish concourses A, B and C and use concourse D as charter and administration, even though charter accounts for 3,189 passengers, down 40% from last year and only 0.1% of the total.
New $800 Million Airport North Terminal
The city hoped to lease part of the land to a developer who would build a 140 room, 8 story hotel on 22,000 square feet of land leased by the city to the hotel developer, but no developers were interested. The reason for the lack of demand can be found in the restrictive criteria in the 140 page Request For Proposals, which we found to have 5 areas where criteria were so restrictive that it made any hotel unfeasible.
The city is using consultant Leo Daly LLC as its advisor since they are experts in airport development, and the city is awarding the hotel land lease based on the weighting of these 5 criteria:
During the construction phase, 30% of the work performed by Louisiana workers must be Targeted Workers, which are defined as residents of Orleans, Jefferson and St. Charles Parishes, and 10% of the project hours must be performed by Disadvantaged Targeted Workers, which are:
During the operations phase of the hotel, the city requires 50% to be Targeted Workers and 30% to be Disadvantaged Targeted Workers. In addition, all new hires for the hotel must use the city's agency, Office of Workforce Development.
The 22,000 square feet will be leased by the city to the hotel developer for $103,000 annually, which is actually a fair price, plus a minimum of $450,000. This payment to the city could amount to as much as 36% of the net operating income for the hotel, making the entire hotel project unfeasible. Here is how the net income is calculated:
The Net Operating Income does not include the payments of $553,000 to the city, which amounts to 36%, so the net income to the investor/developer is actually $980,000, less income taxes of 35% results in an after tax income of $637,000. Since the development is expected to cost $17,000,000, the annual rate of return would be 3.74%.
The numbers just don't add up to a viable project, which is why the city did not receive any interest in building a hotel on the airport property. There are several strategies the city can use to make the project work: one, lease more land for a larger hotel so that hotel revenues can be higher which reduces the impact of the city's fee on the bottom line, or two, reduce the fee, or three, finance the developer by using low interest rate tax free bonds which the city can issue.
September 28, 2016 at 2:50 PM
By Katherine Sayre, NOLA.com | The Times-Picayune
Louis Armstrong International Airport's plan for a prominent hotel at the front entrance to its new $807 million passenger terminal failed to attract interest from developers, despite an unprecedented hotel boom unfolding in downtown New Orleans.
The New Orleans Aviation Board did not receive any responses to its recent request for proposals to build a nationally branded, full-service, 140-room hotel connected to the terminal, which is under construction and slated to be finished by October 2018. The deadline to respond to the hotel request was Sept. 16.
Robert Hand, president of Louisiana Commercial Realty, said the airport is asking too much — at least $550,000 annually — to make the project attractive for a developer. "The money that they're asking makes it unfeasible if you work through the numbers," Hand said. Airport hotels attract companies that want a convenient place for regional employee meetings, he said. The meetings can be held at the hotel, and employees can use their evenings off to go into the city. There also limitations on what brand the airport could attract, he said, depending on what brands already have hotels in the area.
The new terminal project, which all-told would include nearly one-billion dollars investment including a new interstate flyover and a hotel, is slated to open Oct. 1, 2018. Armstrong Airport currently leases 22 gates to airlines and has seen huge growth in passenger traffic which is expected in 2016 to surpass its all-time record of 10.6 million passengers in 2015, so the new terminal will have 30 gates with an option to expand to 42. As for the existing terminal, concourses A, B (Southwest) and C (American, Alaska, JetBlue and others) will be demolished. The airport intends to repurpose concourse D (Delta, United) for charter services and administrative offices. The airport had hoped to have a lease negotiated, approved by the City Council and signed by Dec. 16.
Airport leaders estimated the hotel would be a $17 million project. The city and the New Orleans Aviation Board were seeking a 30-year lease deal that would require a developer to pay about $103,000 a year in rent and a minimum of $450,000 every year to share in revenues.
Across the metropolitan area, the New Orleans market has added more than 4,000 rooms in 23 hotels to its hospitality stock in the last six years, according to Smith Travel Research. Developers have turned to historic tax credits to renovate old office towers in the Central Business District into hotels and apartments, while hotels continue to be developed and renovated in the Warehouse District and near the Ernest N. Morial Convention Center. Tourists and convention visitors drive demand in the city's core.
The largest development in the history of Jefferson Parish, and the one having the biggest impact on the future of New Orleans, is the development of the $807 million dollar north terminal at Louis Armstrong Airport, which will include a 140 room hotel on land leased from the city. CityBusiness recently interviewed Robert Hand, president at Louisiana Commercial Realty on the hotel development.September 29, 2016
By: Lance Traweek, Managing Editor
Louis Armstrong International Airport doesn’t plan to scrap plans for a hotel near its new $807 million passenger terminal despite receiving no interest from hotel developers. The New Orleans Aviation Board did not receive a single response to its recent request for proposals to construct an on-site, three-star hotel next door to the terminal currently under construction. The deadline for responses was Sept. 16.
Robert Hand, president of Louisiana Commercial Realty, said the 140-page RFP makes a hotel not feasible due to the payments required by the city. At a 140-room hotel, the average room rate would $125 per night, which would amount to $6.3 million in potential rental income. But Hand pointed out that hotels don’t operate at 100 percent capacity. “They plan for 60 percent, so pro forma revenues are $3.8 million, which is the effective rental income,” he said. Expenses are 60 percent, which means 40 percent is left, or $1.5 million, the net operating income. If a developer paid $100,000 rent for the land, plus a $450,000 fee, that would amount to 35 percent of net operating income, leaving approximately $1 million before income taxes which are around 35 percent.
The resulting income to the investor is $650,000 annually for a $17 million investment which is a 3.8 percent return on investment, which doesn’t compensate investors enough for the risk, Hand said.
New North Terminal At Louis Armstrong Airport In New Orleans
Hand recommended the board reduce the guarantee fee based on profits, offer financing since they are a government entity and rates would be below market, and lease more than 22,000 square feet so construction costs would be less.
Requests to interview Iftikhar Ahmad, director of aviation at the airport, have not been returned. Several aviation board members did not return messages seeking comment. According to the original RFP, the nationally branded hotel must include at minimum of 140 rooms and embody the terminal’s design by architect Cesar Pelli. Preliminary architectural renderings of the proposed project must include two different aerial views, a typical guest room, lobby area, restaurant and meeting area. The proposal will be judged on its aesthetic and functional compatibility with the North Terminal design as described within the RFP. The selected proposer will lease the hotel development site – about 23,000 square feet – from the NOAB for the term of a 30-year lease. The airport had wanted to consider bids beginning next week and sign a lease by a lease by Dec. 16. The terminal is scheduled for completion in October 2018.
