City officials have pulled the plug on negotiations that would have turned the vacant World Trade Center, widely considered one of the most valuable properties in New Orleans, into a high-end hotel topped by luxury apartments.

In response to a request from The Lens, city officials on Wednesday released a letter sent nearly two weeks ago to Gatehouse Capital, the Dallas-based company chosen last year to carry out the riverfront redevelopment at the foot of Canal and Poydras streets.

The letter said the city had rejected Gatehouse’s “best and final offer.”

“This iconic building is prime for redevelopment and should receive fair market value for rent,” Garnesha Crawford, Mayor Mitch Landrieu’s communications director, said in an email. The city is planning to rebid the riverfront project within 60 days, she added.

The city’s decision re-opens the door for the Tricentennial Consortium — a group of tourism industry leaders with close ties to Landrieu that had proposed to demolish the building and replace it with a park.

The Lens reported last week that Landrieu wants to create a special tax district centered on revenue from a redeveloped World Trade Center. It’s not clear whether the mayor’s plan is linked to the city’s decision to end talks with Gatehouse. The tax district requires the state Legislature’s approval.

Marty Collins, Gatehouse’s president and chief executive officer, seemed taken aback by the city’s decision.

“We were very excited about having been selected,” Collins told The Lens on Wednesday. “Therefore, we were very disappointed to learn that the city was terminating the exclusive negotiations.”

Asked to elaborate, Collins would say only that “it wasn’t a particularly positive experience post-selection. Since it wasn’t a positive experience, I prefer not to say more.”

A city panel chose Gatehouse in August to build a 245-room hotel to be operated by the W hotel chain, topped by 280 apartments that Gatehouse would own for 99 years. Gatehouse prevailed over rival bids from Tricentennial and another developer, James H. Burch LLC.

The cost of the Gatehouse project was initially pegged at $190 million, with $75 million coming from federal and state tax credits available because of the building’s historic significance.

Deputy Mayor Cedric Grant had said he expected to complete the negotiations by the end of 2013, but The Advocate and Times-Picayune both reported earlier this month that the negotiations were dragging on.

The deal between the city and Gatehouse apparently foundered over money. Gatehouse initially offered a $10 million upfront lease payment — equal to its own appraisal — or 105 percent of a third-party appraisal.

The $10 million was equivalent to $391,000 per year in current dollars over the 99-year term, according to the city’s analysis.

City officials said an outside firm had appraised the building at $23.5 million, according to a member of the Gatehouse team who asked not to be named. They also asked for annual lease payments.

Gatehouse then raised its offer to $1 million per year in lease payments that would be increased by 10 percent every five years over the 99-year term, according to the Gatehouse source. That deal would have had an upfront value of $25.6 million — more than the city’s appraised value of the building.

City officials rejected the offer and said they wanted a deal worth that would be worth much more, the source said — an amount unacceptably high to Gatehouse.

The Lens relayed those numbers to the city for a response, but didn’t hear back before publication.

In an email, Crawford said city officials have not been in touch with Tricentennial officials in recent days.

Tricentennial proposed to demolish the X-shaped, 33-story World Trade Center and put a park in its place that would connect Spanish Plaza with the Aquarium of the Americas. Tricentennial also proposed building an undetermined “iconic structure” in the park.

The plan was to complete the project by the city’s 300th birthday in 2018. The city panel did not choose Tricentennial after its officials couldn’t explain how they would finance the proposed $165 million project.

Tricentennial also planned to tie the redevelopment of the World Trade Center site to plans to build a hotel, shops and condos at the vacant upriver end of the Ernest N. Morial Convention Center – a project known as Phase V.

The Tricentennial team included:

  • The Audubon Nature Institute, which operates the zoo, aquarium and insectarium and is led by Ron Forman

  • The New Orleans Convention and Visitors Bureau, which is led by J. Stephen Perry

  • The Louisiana Restaurant Association, which is led by Stan Harris

  • SMG, which manages the Mercedes-Benz Superdome and is led in New Orleans by Doug Thornton

  • The Ernest N. Morial Convention Center, whose general manager is Robert Johnson

  • Two architectural firms: Eskew+Dumez+Ripple and Manning Architects.

  • Darryl Berger, a prominent local developer who owns part of Canal Place and Windsor Court, two structures near the World Trade Center

  • The New Orleans Tourism and Marketing Corp., led by Mark Romig

Told that the Gatehouse deal had fallen through, Romig said, “I thought they were still negotiating with Cedric and the city’s team.” He added that he was unaware of any plans by Tricentennial to rebid.

Efforts to reach Berger and Perry were unsuccessful Wednesday.

Tyler Bridges

Tyler Bridges covers Louisiana politics and public policy for The Lens. He returned to New Orleans in 2012 after spending the previous year as a Nieman Fellow at Harvard, where he studied digital journalism....