VOLUME 25 NUMBER 12 JULY-SEPTEMBER 1995 HOTEL CHATEAU SONESTA HOTEL NEW ORLEANS, LOUISIANA PROJECT TYPE

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1 VOLUME 25 NUMBER 12 JULY-SEPTEMBER 1995 HOTEL CHATEAU SONESTA HOTEL NEW ORLEANS, LOUISIANA PROJECT TYPE The conversion of the historic D.H. Holmes Department Store and warehouse facility, located on adjacent blocks in the French Quarter, into a modern hotel facility and an apartment building. The hotel includes 243 rooms, 6,000 square feet of meeting and function space, over 27,000 square feet of clubs/restaurants and commercial space, as well as courtyards and a swimming pool. An adjacent building, formerly the department store warehouse, will include 88 luxury apartments and a 323-space parking garage. SPECIAL FEATURES Adaptive use Historic preservation Public/private development Entertainment/club uses DEVELOPER Historic Restoration Inc. 400 Lafayette Street Suite 110 New Orleans, Louisiana OWNER 800 Canal Street Partnership New Orleans, Louisiana HOTEL MANAGER Sonesta International 800 Iberville Street New Orleans, Louisiana ARCHITECT Broadmoor Design 2740 North Arnoult Metairie, Louisiana

2 GENERAL DESCRIPTION The Chateau Sonesta Hotel is a study in perseverance, involving a medley of public and private financing that was used to convert a critical historic asset in downtown New Orleans the D.H. Holmes Department Store and warehouse into a modern, 243-room hotel facility and 88-unit apartment building. This conversion required not only a public/private partnership and a complex financing package but a great deal of specialized design and construction expertise as well, as the store included numerous separate buildings that had been built over a period of years, none of which were originally designed as a hotel. The developer Historic Restoration Inc. (HRI), headed by Ed Boettner and Pres Kabacoff-has set a mission for itself to renew cities large and small through preservation and adaptive use of historic buildings and through new construction in historic neighborhoods, in partnership with the public, private, and nonprofit sectors. HRI's first projects involved the conversion of obsolete warehouse buildings to residential use in the old Warehouse District of New Orleans. THE SITE AND DEVELOPMENT PROCESS The site for the new Chateau Sonesta Hotel covers approximately two thirds of the block bounded by Canal, Bourbon, Iberville, and Dauphine streets in the French Quarter, and faces onto all of these streets. The primary entrance to the original department store was on Canal Street, but the new hotel has minimal frontage on this street; the primary frontage for the hotel is now on Iberville. The site for the apartment building is the former department store warehouse directly adjacent to the hotel site on a separate block. The two blocks are located on the edge of the French Quarter and steps away from the central business district across Canal Street. For over a century, the D.H. Holmes Department Store was part of downtown New Orleans. Built in 1849 by Daniel Henry Holmes, it was one of the first commercial establishments to serve the public from Canal Street, a wide boulevard that separated the old and new sections of the city. Once a rampart demarcation, later the heart of downtown, Canal Street developed into the main retail corridor of the city. The D.H. Holmes store was expanded several times over the years until it occupied much of the square bounded by Canal, Iberville, Dauphine, and Bourbon streets. An annex was added in 1905, a five-story warehouse was constructed across Iberville Street in 1919 and, also across Iberville, a parking garage was constructed in In 1988, after Holmes had struggled for a number of years, Dillard Department Stores bought the D.H. Holmes stores, closed the store on Canal, and donated the property to the city in When the store closed, several boarded storefronts already existed on Canal Street, and the great retail corridor was becoming a patchwork of vacant stores and struggling commercial enterprises. Concerned about the future of the site, the city of New Orleans quickly brought in HRI to redevelop the property. After several false starts, and only after splitting the project into two developments a hotel in the main building and a luxury apartment building in the Iberville warehouse HRI managed to arrange and secure financing. The deal that was struck involved a lease arrangement between HRI and the Canal Street Development Corporation (CSDC), an entity created by the city of New Orleans in 1989 to oversee the redevelopment of Canal Street. FINANCING Financing for the project took three years and involved a mix of private and public sources. The original financing plan with a New York bank fell through early in the process. As a result of this and the general hesitancy of national financial institutions to finance a hotel in Louisiana during this period, the developer turned to local sources, and financing was finally arranged through a bank consortium led by the First National Bank of Commerce in New Orleans.

3 The bank consortium provided a $12.6 million first mortgage on the hotel with Premier Bank of Baton Rouge lending another $5.4 million for construction of the apartments. The U.S. Department of Housing and Urban Development provided a $5.6 million second mortgage through the city. Boh Brothers Construction Company, an affiliate of the construction company that built the project, provided a $3 million bridge loan. Chevron Land and Development Company contributed $6.5 million in equity to the project at the end of the construction period, which was used to repay the bridge loan. In return, Chevron received a federal tax credit for helping to restore a landmark building. The developer deferred up to $2 million in development fees and contributed an additional $1.2 million in equity. To finalize the deal, Sonesta International, the hotel management company, provided a five-year guarantee of the hotel's debt service on the first mortgage by means of a lease. The developer was able to reduce the cost of construction by applying innovative construction methods learned on previous apartment projects. The original 1989 estimated project cost of $36 million was reduced to approximately $29.5 million, $23 million of which is for the hotel. As the owner of the building, CSDC will receive approximately $260,000 to $270,000 per year, or 6 percent of the hotel's gross revenue, whichever is higher. It also receives 15 percent of the hotel's net profit and 40 percent of the commercial rents. PLANNING AND DESIGN The primary building on Canal Street includes four floors and takes up the better part of the block. The only way to make such a large building work as a hotel was to create internal courtyards and atriums; two open courtyards and one enclosed atrium, into which the interior rooms open, were centrally located in the core areas of the rectangular building. Once this courtyard solution was incorporated into the building design, the primary problem involved laying out the rooms around the existing columns. To solve this problem, many of the rooms were designed with unusual floor plans, some with small sitting nooks. Most rooms are larger than typical hotel rooms, and all have 12-foot ceilings, one of the primary assets of the building. Many of the rooms still have original wooden windows and wainscoting. Construction workers ran into many unexpected problems that caused delays, such as steel supports hidden behind brick or masonry. In addition, the hotel originally was connected to the apartment building by a bridge across the street. It was a visual obstruction and a blight on the street and was removed. The most significant historic feature of the existing building the 1913 neoclassic facade on Canal Street had been covered by a new facade in 1964, and in the process the original ivory-glazed terra cotta tile was destroyed. Removing the 1964 facade, which included modern arches and token cast-iron balconies, was a significant undertaking in itself. Only a few relics of the original ornamentation and functioning windows remained underneath. Since the original drawings were still intact, however, workers were able to re-create and restore the original facade, using fiberglass rather than terra-cotta. The primary lobby entrance was placed on the corner of Iberville and Dauphine, with a car dropoff area cutting through the corner of the building at this location. A second pedestrian entrance is located on Canal Street. MARKETING AND MANAGEMENT The New Orleans hotel market has performed quite well for the past several years as the result of increasing demand resulting from a strong community effort to promote tourism coupled with no new construction. The Chateau Sonesta Hotel, the first major hotel to open in several years, thus has been able to take advantage of the growing demand. Hotel occupancy currently is around 70 percent, which is typical for the market. Room rates range from $90 to $190 per night for a typical room, and several suites have much higher rates. Hotel amenities include an outdoor pool, an exercise room, a gift shop, and a tour desk.

4 Several nightclubs and restaurants are planned for the ground level space along Bourbon Street, but space has not been leased yet. An original plan to master lease the restaurant and club space to one firm who would then sublease the space fell through, and the developer has decided to handle the leasing internally. The space, which is in a prime location at the end of the Bourbon Street strip of clubs and entertainment venues, is not expected to be difficult to lease. The apartment units are planned primarily as 850- to 900-square-foot units, and monthly rent is expected to be $1.10 to $1.15 per square foot. EXPERIENCED GAINED The developer's attempts to arrange financing from out-of-state banks and other sources was a frustrating experience, and in the end it was local banking institutions, investors, corporations, and government that made the project work. Appealing to the civic pride and interest of local players is crucial for the success of this kind of development. Adapting a historic department store building into a hotel presents formidable design problems, but creating solutions to these problems can result in uniquely interesting results. For example, the use of internal courtyards and unusual room layouts practical solutions that make the project functional also give the hotel a unique and memorable character that can be quite appealing to hotel guests.

5 PROJECT DATA LAND USE INFORMATION Site Area: 102,000 square feet Hotel Site: 70,000 square feet Apartment Site: 32,000 square feet Hotel Gross Building Area: 250,000 square feet Hotel Rooms: 243 Apartment Units: 88 Off-Street Parking Spaces: 323 HOTEL INFORMATION Typical Daily Room Rate: $125 Range of Daily Room Rates: $90 to $190 Average Annual Occupancy Rate: 70 percent Meeting Rooms: 5,937 square feet Rooms per Floor: Second 82 Third 85 Fourth 76 DEVELOPMENT COST INFORMATION 1 Site Acquisition Cost: $508,876 Site Improvement Costs: Landscaping $5,750 Total $5,750 Construction Costs: Finishes $3,700,000 Other $11,666,366 Total $15,366,366 Soft Costs: Architecture/engineering $496,500 Marketing 635,000 Legal/accounting 1,135,298 Taxes/insurance 76,532 Construction interest and fees 2,122,090 Other 2,655,921 Total $7,121,341 Total Development Cost: $23,002,333 FINANCING SOURCES 2 Bank Consortium led by National Bank of Commerce of New Orleans

6 First mortgage $12.6 million Premier Bank of Baton Rouge Apartment construction loan $5.4 million U.S. Dept. of Housing and Urban Development Second mortgage through the city $5.6 million BOH Brothers Construction Company Bridge loan $3 million Chevron Land and Development Company Equity,at end of construction to repay the bridge loan; they will receive federal tax credits $6.5 million Historic Restoration Inc. Equity $1.2 million Deferred development fees $2 million Notes: 1 For the hotel only, excluding the apartment building under construction. 2 This represents the total financing arranged for both hotel and apartment buildings. Actual costs have been less, so financing arranged exceeded what was necessary. DEVELOPMENT SCHEDULE Original Building Construction: 1849 Current Facade Constructed: 1913 Department Store Operation Closed: 1989 Site Acquired by City: 1989 Planning Started: 1989 Construction Started: September 1993 Hotel Opened: January 1995 Apartments Expected Completion: Late 1995 DIRECTIONS From New Orleans International Airport: Take Interstate 10 east to the New Orleans business district exit and Canal Street. Proceed south on Canal to Dauphine Street. Proceed one block to the corner of Dauphine and Iberville Streets. The hotel address is 800 Iberville Street. Driving Time: 20 minutes in non-peak-hour traffic. The Project Reference File is intended as a resource tool for use by the subscribers in improving the quality of future projects. Data contained herein were made available by the Development team and constitute a report on, not an endorsement of, the project by ULI - The Urban Land Institute. Copyright 1995, 1997, by ULI - the Urban Land Institute 1025 Thomas Jefferson Street, N.W. Ste. 500w, Washington, D. C

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