NIAGARA FALLS — An agreement praised as having “ironclad assurances” that would lead to new development downtown contained only one substantial remedy for the city if no construction occurred.

So what happened? No construction occurred. “It’s intended to be a sizzle contract, a contract that looks big, but is really thin in terms of nailing the obligations to the developer,” University at Buffalo law professor George M. Hezel said of a 2003 contract between Niagara Falls Redevelopment and the city.

“It looks like the developer has substantial obligations, but if you look, they’re very slippery,” said Hezel, who agreed to look at the deal at the request of The Buffalo News.

He concluded that the contract provided few assurances that anything would get built.

He also said actions the city took — or failed to take — have made it more difficult to enforce the only penalty in the contract: taking back 260 parcels of land the city sold at pre-casino prices.

The city’s agreement with NFR—a 12-year-old private company now controlled by Manhattan real estate developer Howard P. Milstein— has always offered the tantalizing dream of more than $100 million in development in the neighborhood where the Seneca Niagara Casino opened in late 2002.

It turned out to offer little more than disappointment.

The first contract between the city and NFR was signed in 1997, and a second was approved six years later when little development occurred. City officials continue to wait for the promised results.

Interviews with Hezel and others familiar with the 2003 contract, as well as a review of city documents, show that:

The contract was “weak” and offered few assurances that the company would build any of the projects described. The contract envisioned $110 million in development. None of it has been built.

Contract language was vague and provided little indication of what would be built. No detailed information was included for more than $86 million of the expected development, despite the fact that city leaders already had reason to believe that the contract could be a failure.

The contract did not include revenue sharing or other public benefits common in other types of public development agreements.

The city sold most of the 260 properties to a limited-liability company that was not bound by the agreement, rather than directly to NFR. That has added an extra hurdle if the city declared the company in default and sought to take back its land.

The city failed to include restrictive language in property deeds sold to the group that could have helped protect the city.

The city’s enforcement of the contract is one of two key development agreements in Niagara Falls now under review by the office of State Comptroller Thomas P. DiNapoli. The scope of the audit, city officials said last year, is to determine whether the city has done enough to hold the developers to the terms of their agreements.

NFR forged its first contract with city officials a dozen years ago, and it has been a thorn to politicians almost as soon as ink dried on that 1997 version of the pact.

From the beginning, when a company led by Toronto dealmaker Edwin A. Cogan arrived in Niagara Falls with a grand plan to save downtown, the developer had the upper hand.

The first deal gave away rights to roughly 160 acres of land downtown and a city-owned splash park, as well as first rights to operate the city’s parking lots and manage its convention center.

In exchange, the company promised to transform the city with $130 million in development.

There were red flags from the start.

Big-name investors, including Lee A. Iacocca and Mel Harris, were written into the contract, but were not signatories and provided no public indication that they were involved.

Cogan, court papers later revealed, never had the financial resources to carry out his plan.

“The city was negotiating from a position of weakness,” Mayor Paul A. Dyster said of the 1997 deal. “The city was desperate for development and willing to agree to just about anything to try to get a developer to say that they were interested.”

Meanwhile, hopes for the city swelled.

More than a 1,000 people showed up for a meeting to unveil a master plan for the city that included six new hotels, a casino, housing, nightclubs, theaters, restaurants and shops.

And then, nothing.

The company took over operations of the Niagara Falls Convention & Civic Center and negotiated a deal with the Niagara Frontier Transportation Authority to operate the Niagara Falls International Airport.

But NFR built none of the development envisioned.

In 2003, the city sought to renegotiate the agreement to end a legal stalemate and tried to revive a deal already showing signs of failure.

The new agreement called for NFR to build $110 million worth of development projects on land east of John B. Daly Boulevard.

Today, only a pad foundation and chain-link fences have been put up by NFR.

Lack of disclosure

Here’s what that contract called for:

Two projects, each worth $12 million, were to be constructed by April 2007. The first project was planned for 13 acres of Department of Transportation surplus land the city was never able to acquire.

Principals of NFR, under a separate company, purchased the 13 acres at DOT auction for $1.25 million in 2005.

The second was planned for a former city-owned playground on 10th Street. The city sold the small park to NFR in 2004; it remains fenced off and vacant.

The contract does not describe what either the first or the second project would entail, aside from its value and location.

“They want an unspecified silver bullet that would be $24 million,” Hezel said. “To not have a developer disclose what the developer plans to do with the land, I find that unacceptable.”

An additional $86 million in unspecified “development” was to be under construction by December 2007.

Ronald D. Anton, the city’s former corporation counsel, helped renegotiate the 2003 agreement.

“It was necessarily vague because they never produced any concrete ideas, but what they were to spend on construction and development was very clear,” Anton said. “As far as I’m concerned, that is still enforceable.”

One of the few provisions in the contract that came to fruition was the sale of 260 city-owned parcels to the firm.

City records show that during a four-year period, it continued to sell land despite signs that development would not occur by the contract’s deadlines. Those properties, which total about 30 acres, were sold for a total of $2.5 million.

The city long ago spent that money. Much of it went directly into the city’s budget.

One of the few remedies the city holds in the contract is to buy back the properties it sold—a cure complicated by the city’s own actions.

The city, Hezel said, could have better protected itself by either holding onto properties until plans advanced or placing language in deeds that would make it easier to take back the land for nonperformance.

Instead, the city transferred most of the land to a separate company, Eleventh Street Properties, at the request of the developer.

A lesson learned

The city could provide no documentation that the company submitted written proof to the city that Eleventh Street Properties is owned by NFR.

“I don’t believe we have anything that substantiates that entity of being a subsidiary of NFR,” said Craig H. Johnson, the city’s new corporation counsel. “However, at the time of the conveyance of those various parcels pursuant to the development agreement, NFR did designate Eleventh Street Properties as the grantee in those various deeds.”

An NFR representative, Executive Vice President Roger Trevino, declined to comment, but a series of letters sent to the city by NFR representatives show that it has taken the position that the city failed to live up to its end of the agreement.

Meanwhile, the company has continued to assemble the largest parcel of developable land in downtown Niagara Falls. It has purchased parcels from private owners, demolished vacant buildings and maintained its land.

But NFR’s holdings are not as large as often thought. NFR’s development tract is often referred to as 142 acres, but actual land owned by NFR in the contract’s development area was about 68 acres as of early this year.

There are still Swiss cheeselike holes in the land NFR has assembled that it doesn’t own. Within the 142 acres are public streets and alleys.

The company owns two high-profile properties outside of the development area — a turtle-shaped building that borders Niagara Falls State Park and a former Nabisco plant. Both are closed to the public.

Now, more than 10 years after the first deal was signed, city leaders look back on the contract as a lesson learned.

“It’s just a regrettable saga in the development history in the city that just has so many negative elements now,” Anton said.

Dyster and Johnson are expecting the state comptroller’s report soon, but Johnson, hired last year, said the city has already taken a different approach to negotiating city contracts.

“I think you can anticipate that future agreements will contain various performance measures and standards tailored to the particular transaction,” Johnson said.

Those standards could, he said, include time periods, job-creation requirements and tax revenue requirements.

Failure to meet contractual standards, Johnson said, would bring consequences. Those could include financial penalties or “clawback” provisions that allow the city to take back undeveloped property.

“All these would have to be tailored to the specific transaction,” Johnson said. Dyster also has appointed a new economic-development director, Peter Kay, to serve as the lead contact for dealing with NFR and other downtown developers.

Are there still remedies for the city? Yes, Hezel said, if the city were willing to commit time and resources to what could be a lengthy legal battle.

“Frankly, I think the horses may be out of the barn,” Hezel said. “It’s going to take a real roundup party to get them back.”