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The Niagara County Industrial Development Agency granted an unusual tax break Thursday that will allow a Canadian company to avoid property taxes for five years on a Niagara Falls hotel to help it buy and rebuild the closed facility.

The developer, Merani Hospitality, must meet certain levels of investment to receive the full tax break for five years on the former Fallside Hotel at 401 Buffalo Ave.

The tax break is also tied to another project by the same hotelier to buy and reopen the former Inn on the River at 7001 Buffalo Ave.

Both hotels would receive sales, mortgage and property tax breaks for between 15 and 20 years under the payment-in-lieu-of-taxes arrangement, but only the Fallside property would be fully tax-free for the first five years.

The county agency approved the agreement despite a request by the city's top economic development official, Peter Kay, that the IDA work with the city to determine whether there is documentation to show that the tax breaks are necessary for the projects to move forward.

"That's not our burden," said IDA Chairman Henry M. Sloma.

Kay, in written comments submitted to the agency, asked the IDA to allow the city to review and comment on any applications for full tax breaks within the city before approving them.

IDA counsel Mark J. Gabriele said the agency followed procedures set by state law to notify the city of the proposed tax breaks and to hold public hearings. He said any additional information shared with the city is done as a "courtesy."

Kay said after the meeting that the city is considering a verbal request from the developer for either a city grant or loan to help with the hotel projects. Kay said he is currently reviewing the requests to determine whether there is "verifiable necessity" for the public support and whether there would be benefits to the city that would eventually exceed the amount of the grant or loan.

Sloma said the IDA does not have to meet those two standards to agree to give tax breaks to a project.

"Our approach to helping businesses is different than his," Sloma said of Kay. "Now he's trying to intercede and circumvent some of the opportunities we have. If you look at the City of Niagara Falls, the economic development initiatives have been dismal."

IDA members have said that one of the reasons behind providing a full tax break for the Fallside hotel property is that it will have to compete with the Seneca Niagara Casino & Hotel, which does not pay property taxes but does pay a portion of its slot machine revenue to the state.

Another reason behind the tax break -- which is the first of its kind for a hotel in Niagara Falls -- is that the developer has said it will take at least three years of work on the Fallside hotel before it can be reopened, Gabriele said.

The developer has said the Fallside hotel might have to be demolished in whole or in part.

Under the IDA agreement, which has been authorized but not yet written, Merani Hospitality would receive five years of zero property taxes on the former Fallside hotel as long as it meets annual investment and operating benchmarks.

The benchmark marks would require that $16 million be invested in both hotels during a three-year period. In addition, the former Inn on the River would have to reopen during the second year of the agreement and the former Fallside would have to reopen by the end of the third year, Gabriele said.

Property taxes would then be phased in during the next 15 years on the Fallside property.

The IDA's payment-in-lieu-of-taxes arrangement for the former Inn on the River would provide a standard tax abatement phased in during a 15-year period, Gabriele said. That property will be owned by a company called LaSalle Hospitality Inc.

Both Merani Hospitality and LaSalle Hospitality are run by Canadian hotelier Faisal Merani. He has told the IDA he plans to invest about $5 million in the former Inn on the River and expects to invest $20 million in rebuilding the former Fallside hotel.

As part of the purchases, the companies would pay some $1.6 million in delinquent property, sales and room taxes, their attorney, Damon DeCastro, has said. Merani also owns and operates a recently upgraded Holiday Inn in downtown Niagara Falls.

Sloma abstained from voting on the hotel deal because DeCastro is his estranged son-in-law.

e-mail: djgee@buffnews.com