Is the City Council Revamping Economic Development Incentives Due to Ongoing Questions About Five O Fore Golf LLC?

City Council leaders have begun the process of reviewing the guidelines currently in use to determine which businesses will be accepted into the highly coveted PILOT (payment in lieu of taxes) program which provides a multi-year, multi-million dollar property tax break for the lucky recipients. To qualify for the tax break, a developer must meet many criteria and subsequently transfer the title of the property to a public entity for a predetermined number of years.

The self-governing Industrial Development Board (IDB) is one of the city’s flushest and most powerful economic development entities. Since its inception in 1973 the IDB has assisted in the creation of more than 120 new projects by providing PILOT incentives and tax-exempt bonds for developers large and small. These projects represent almost $1.7 billion of capital investment and range from hotels, schools and housing to retail and commercial developments.

Out-of-town developer Alex Xaio is the most recent businessman designated to receive an attractive 10-year post construction PILOT. Through the project’s owners Yang Qi Holdings, Xiao is rapidly constructing a golf-themed entertainment and dining complex – Five O Fore Golf LLC – on a 9-acre site at 3800 Howard Avenue. All Xiao needs to access the multi-million dollar tax break – the linchpin of his overall financing package – is to complete the project and receive an occupational license. Xiao is attempting to get up and running “Novemberish” and build market share ahead of his competition, Top Golf, a similar venture soon to be built close to the riverfront.

The IDB regularly allows developers to forgo many millions in property tax payments – dollars that critics say could be used to fight crime, educate children, rebuild streets or reduce flooding. By providing the obviously attractive short-term property tax advantages, the IDB achieves one of its main goals – the birth of new businesses with new jobs and long-term taxes often in geographic areas where economic growth is less likely to occur.

Critics claim that the IDB’s decisions are sometimes based on subjective rather than objective criteria. For example, Stanley McDaniel of the McDaniel Group – an established consultant to the IDB – was one of two firms tasked with evaluating the Five O Fore Golf proposal. McDaniel’s scope of work included conducting a transparent financial analysis and evaluation of the project and its feasibility as well as an analysis of the developer’s rationale or need for a PILOT award.

The other consulting firm the IDB retained for the Five O Fore Golf analysis was led by Tulane University professor Toni Weiss, a frequent IDB consultant. McDaniel and Weiss worked off two different sets of numbers as to the duration of the PILOT. The IDB application McDaniel received listed a 10-year PILOT. Weiss calculated her findings based on a 12-year PILOT. She also relied on income projections estimated by Xiao. Working from documents supplied to her by the developer, Weiss determined that the City would receive an additional $8.5 M in taxes during the PILOT period of 12 years and $21 M over the policy horizon. Weiss submitted her report on March 27, 2023.

In McDaniel’s final report, he included a statement from Xiao’s IDB application that states: “the golf entertainment product is likely eventually to enter the Greater New Orleans market. The market cannot support more than one such facility… Additionally, the region and the city specifically, have suboptimal income and other indicators making investment particularly risky.” Xiao requested a tax break of $200 K per annum for the life of his 10-year PILOT. According to a chart McDaniels prepared as part of his analysis, the developments’ estimated market rate taxes for the ten year period – as provided by Assessor Erroll Williams – would be $4.48 M. Therefore, the PILOT could provide Xiao a tax saving of $2.4 M. Annual property taxes on the site are currently listed at $32,885.

The McDaniel Group reviewed more than a dozen documents submitted by Xiao as part of the IDB application and found that they could not reasonably determine that the project could be completed based on the absence of critical documentation pertaining to conventional financing, an “as built” appraisal and supporting documentation of project deal structure. “Specific details on the financing were not made available,” wrote McDaniel in his report. Xiao only submitted a generic pre-qualification letter from an area bank. Also missing was a 10-year operating pro forma that reflected the operation of the property, a master lease between Yang Qi Holdings (the owner) and Five O Fore Golf (the operator) and any other allied leases such as for the restaurant on property.

Based on the information made available to IDB’s consultant, McDaniel concluded that it would be “premature” to provide a recommendation for a PILOT. McDaniel further suggested that “the PILOT decision be withheld until such time as additional details and documentation…are provided.” McDaniel submitted his report on March 31, 2023. Despite McDaniel’s conclusions, IDB’s attorneys strongly advocated in favor of Xiao’s PILOT which was quickly approved by the agency.

Xiao purchased the Howard Avenue site and the development concept from Joe Jaeger for $12.5 M in November 2022 which included $7 M in land value and $5.5 M in salvage value. Jaeger paid the Times Picayune Publishing Company $3 M for the land and the newspaper’s former offices. Jaeger had the Times Picayune building demolished and began construction of a new foundation before he decided to abort the project. Jaeger had been approved for a $17 M PILOT in 2020 but obviously did not finalize the deal.

Since Xiao acquired the location and the project, questions have repeatedly risen about the development’s plans and construction. IDB attorney David Wolfe from Adams & Reese said at the IDB’s May 8th board meeting that the agency is not responsible for the Five O Fore Golf project during the construction phase. The IDB becomes the “owner” of the development only after the business is ready to operate and the real estate title is transferred.

Does Wolfe’s comments diminish IDB’s fiduciary responsibility to the taxpayers of New Orleans? Do his words mean the IDB is not concerned if Xiao’s constructions plans are fully approved, if the proper materials are being used, if inspection milestones are being met, or if Xaio has obtained – and fully paid for- the proper permits? Does the IDB willingly turn a blind eye if minority hiring goals are not adhered to during the construction phase or if Disadvantaged Business Enterprises (DBEs) don’t participate equitably? Are the development’s property tax payments current? Until construction is complete, Xiao or his representative is only required to update the IDB board quarterly as to the development’s progress.

Perhaps it was the uncertainty surrounding Five O Fore Golf that peaked the Council’s interest in reviewing current incentives. When Xiao approached the IDB, he announced a development cost of almost $30 M. Xiao has now pegged the cost at $40 M. Did Five O Fore Golf’s Xiao’s development costs rise 25% in two years or did Xiao underestimate his real financial need? Will Xiao revisit the PILOT agreement with the IDB and ask for a larger tax break?

It is reasonable to assume that a company with the capacity to handle a $30 M or $40 M project would have a substantive corporate office. Yet, Xiao operates from a strip shopping center in Denham Springs. In the project’s application to the IDB, a suite at the shopping center was listed as the residential address for all three partners Yang Qi Holdings – Mei Mao Xiao (60% partner), Michael Word (20% partner) and Hai Yong Chen (20% partner), an unusual arrangement indeed. A Google search of Mei Mao Xiao lists her as a resident of Walker, Louisiana. Her relationship to Alex or Harry Xiao is unknown. No additional information was readily available about Word or Chen.

It appears that neither developer Alex Xiao or brother Harry Xiao are actual owners of Yang Qi Holdings. In addition, the IDB application indicates that Five O Fore Golf LLC will operate the project. No lease agreement was provided to the IDB which verifies that claim. Mei Mao Xiao is listed as Registered Agent and Manager of Five O Fore Golf LLC on the Secretary of State’s website. Its corporate address is the same as Yang Qi Holdings LLC. There are no additional corporate officers listed.

Are the two Xiao brothers employees of one or both entities? Is there a counter letter between the two Xiao brothers and Mei Mao Xiao? Alex is thought to operate a trampoline park, Airborne Extreme LLC, in a separate building at the Denham Springs shopping center site. Mei Mao Xiao is the registered agent and an officer of that entity as well.

The City Council is thought to be undertaking a comprehensive review of economic development incentives in preparation for proposing reforms to local and state incentive laws. In April 2024, the Bureau of Governmental Research sent a letter to Councilmembers Morrell and Moreno in April 2024 with suggested key findings that might be relevant to the Council’s review process. In the aftermath of Hurricane Katrina, BGR prepared a detailed study on the IDB in March 2007. With the Council’s renewed interest, BGR and other citizen organizations could play a vital role in crafting a stronger set of guidelines which would better protect taxpayer dollars while still encouraging economic growth. After all, public sector budgets are already tight and getting tighter as inflation continues to drive up the cost of almost every service the City of New Orleans provides.

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