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.
