Buffalo's approach to waterfront hotel plans questioned
Criticism focuses on selection process
City Hall, by its own admission, issues a flawed request for development proposals on prime waterfront property.
Two developers respond, and a review panel determines one plan is far superior to the other.
The better proposal, though, requires the city to amend some rules for the site, which city officials first suggest they might be willing to do, but later decide not to.
Rather than reject both and start over, city officials select the weaker proposal at the mayor’s insistence.
That, in a nutshell, is how the Buffalo Urban Renewal Agency came to select James W. Pitts’ plan to build a hotel in Erie Basin Marina even though it was described by a veteran economic development official as “far inferior” and “better suited to a suburban or neighborhood site.”
The competing proposal, which also included offices and stores and was submitted by a development team headed by Paul Ciminelli and Mark Hamister, not only garnered the support of city staff and nearby residents who reviewed the project, but it would have provided a much greater financial return to local and state coffers.
“From what we see on the surface, this doesn’t make any sense. We could do so much better,” said Common Council President David Franczyk, a member of the BURA board who wanted to delay a decision.
A Buffalo News examination of the deal — based on interviews with the principals and review of more than 300 pages of documents obtained under the Freedom of Information Act — found numerous problems with both the development proposals and the process used to vet them.
The News found:
• Brian Reilly, the city’s economic development chief, considers the request for development proposals, issued before his arrival, a problem. Attachments to the request included a hodgepodge of development plans and requirements that have been amended since the 1960s, some of which are scribbled into the margin of documents.
• The Ciminelli proposal required the city to amend its height limit for the site and re-configure city-controlled parking lots to create more spaces. Company officials said city officials told them early on they might be willing to make the changes, but were not willing to follow up.
• The proposal from the team headed by former Common Council President Pitts met parking and height requirements. But five of six members of a panel that reviewed the proposals gave the Ciminelli project a better grade, and overall, it outscored the Pitts entry by a wide margin.
• The Ciminelli project would have generated a much greater financial return for local and state government. Projections for the project prepared by Ciminelli, which Reilly considers credible, show that the Ciminelli project would generate nearly $2 million a year in tax revenue, compared with less than $600,000 for the Pitts project. In addition, Ciminelli offered to pay $1.2 million for the 1.4-acre site, while Pitts and Co. offered $100,000. The property is assessed for between $224,300 and $476,200.
• Both projects counted on significant subsidies. Ciminelli and Co. projected $8 million to $16 million in tax breaks and other incentives. The Pitts group did not disclose anticipated tax breaks, but in its proposal said public funds would account for up to 25 percent of its financing. The News estimates the value of government incentives over the years at $2 million to $4 million.
•Mayor Byron W. Brown, who heads the city’s Urban Renewal Agency, gave board members neither a heads-up on his recommendation prior to the Dec. 4 meeting nor any substantive documentation before pressing them for a vote. Among other things, board members were never provided copies of the review committee findings, which criticized the Pitts proposal. Three Council members on the BURA board wanted to table the decision for further consideration, but Brown, who appoints a majority of board members, won approval for the Pitts proposal in a 5-to-3 vote.
• Reilly said the city did not seriously consider rejecting both proposals for fear of a lawsuit. But in its request for proposals, the city stated that it “reserves the right to reject any and all proposals submitted.”
Solicitation faulted
The hotel site — on La Riviere Drive, the street that connects downtown with the waterfront — is one of the last vacant parcels at Erie Basin Marina. Development regulations, some dating to 1963, stipulate what type of construction is permitted on particular parcels — housing as opposed to, say, office buildings or hotels — how tall buildings can be and how much parking they must provide.
In November 2007, BURA issued a request for development proposals (RFP). Reilly, hired last spring as commissioner of economic development, permits & inspections, termed the wording of the RFP “loose.”
Two teams of developers responded, one led by Ciminelli Development, the other a joint effort by Pitts Planning and Development and Specialty Restaurant Corp., owner of Shanghai Red’s, a restaurant next to the development site.
The decision to issue an RFP followed Specialty Restaurants’ inquiry in July 2007 about buying the land next to Shanghai Red’s, which the Californiabased company owns.
“During the past year we have become concerned about the level of business at the restaurant,” David Tallichet, the company’s chairman and president, wrote in a July 23 letter to the mayor.
Pitts hotel proposal
The proposal Pitts and Specialty submitted in November 2007 called for the construction of an $8.2 million 100-room hotel operated by Wingate Inn, a national chain looking to gain entry into the Buffalo market. The hotel would not include a restaurant, but would be connected to Shanghai Red’s.
That proposal did not include a required disclosure of any past financial or legal problems encountered by Pitts and Specialty, including any lawsuits filed against them. Yet in 2001, the city, when Anthony Masiello was mayor, sued Specialty over its failure to redevelop the site on which Shanghai Red’s was eventually built.
Pitts said the lawsuit was discussed during the review process.
“It’s not something you can hide. It wasn’t an issue,” he said.
The Pitts proposal did meet several requirements spelled out in the city’s urban renewal plan for the parcel. It had adequate parking and the hotel would be no taller than the city’s 40-foot limit.
But the hotel-only proposal did not meet the city’s preference for more than just a hotel on the site. The request for proposals said “commercial, office and retail uses, a mixed-use development is encouraged.”
The city’s review panel met with the two developers and evaluated their proposals in February.
The panel, headed by John Hannon, the city’s director of real estate, i
awarded the Ciminelli proposal 522 out of a possible 600 points; the Pitts project received 422.5 points. Five of six committee members gave the Ciminelli proposal a higher rating.
“The Ciminelli proposal is superior in quality, scope and diversity,” the committee said in its report, while noting that parking issues needed to be addressed.
Hannon, in his rating sheet, said the Pitts proposal “lacked supporting financial documentation.”
David Stebbins, a longtime city development official who now works for the ECIDA, said the “Ciminelli is far superior,” in his written comments.
Pitts, however, said he sees his project as a better fit for the site.
“The design we have is to scale, it matches,” he said.
Pitts maintained that a hotel- only project makes more sense for the site, and that brining in a new chain like Wingate adds variety to the mix.
Moreover, he contended it makes little sense to include retail when the city is attempting to develop the nearby Canal Side or office space when downtown building owners are dealing with vacancy problems.
“They’re all robbing from each other, you’re not necessarily generating new tenants,” he said.
The Ciminelli proposal called for construction of a $37 million, 10-story building that would include 135-room Hilton Garden Inn, 80,000 square feet of Class A office space, retail on the first floor and 76 inside parking slots.
Ciminelli intended to build to LEED, or green, standards, which the Pitts project did not.
John Cleary, a Ciminelli vice president, noted that the proposal met the city’s request for a mixed-use development. He said company discussed the height and parking requirements with city officials.
“They said they would be willing to work with us on the height and parking requirements based on a superior project,” Cleary said.
To bolster their case, Ciminelli officials calculated their project would generate $1.98 million in property, sales and bed tax revenue a year; the Pitts hotel $557,000.
Why did the city opt for the Pitts proposal?
Reilly said parking was the primary problem with the Ciminelli proposal. The site was too small to create all the parking spaces necessary, he said, and Ciminelli was unable to strike a deal with those who controlled adjacent lots. He cited the building’s height as a secondary issue.
But neither Brown nor Reilly cited parking as a problem at the BURA meeting Dec. 4, when they explained their objections to the project, Cleary said. What’s more, Ciminelli had determined that sufficient parking could be obtained by adding an underground level and reconfiguring a nearby city-controlled lot, Cleary said.
“We met all parking needs for the development,” Cleary said.
Reilly said he spoke with Ciminelli officials about scaling back the project to deal with parking and height issues, but they stuck to their plans.
“I gave them the chance to change,” he said. “I think they took a gamble.”
Cleary and Paul Ciminelli, president of the development company, said that’s not true.
“No one said, ‘We can’t go forward with your project because of X, Y or Z.’ There was no dialogue specific to anything that would fundamentally rule us out,” Ciminelli said.
Brown presses vote
The showdown came at the Dec. 4 meeting.
A notice was sent to BURA board members the day before the vote that selection of a developer for the site was being added to the agenda. No details, including the review committee’s evaluation, were shared in writing with board members at the meeting.
Instead, Brown and Reilly made their case for the Pitts proposal, while saying problems with the Ciminelli project ruled it out of consideration.
The three Council members on the board — Michael Kearns, Franczyk and Michael LoCurto — said they wanted the item tabled for further consideration. The mayor, however, wanted a vote, and got one.
“I am not in favor of tabling this. The rules were set, and they didn’t follow the rules,“ Brown said of Ciminelli.
Why not reject both proposals and start over, especially given Reilly’s dissatisfaction with the request for proposals?
“There is a risk of lawsuit. That risk is significant,” Reilly said in an interview.
Given the escape clause in the request for proposals, Reilly’s concerns “sound like a bogus reason. People reject proposals all the time,” said George Grasser, retired real estate development attorney.
The decision to designate the Pitts team as the designated developer is subject to Council approval and requires the support of six of nine members.
Kearns, who represents South Buffalo on the Council and also serves on the BURA board, said the Council is unlikely to approve the proposal. Reilly and Pitts are vigorously lobbying the Council.
“I don’t believe they have six votes right now,” Kearns said. “I know four to five would vote against it.”
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