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Falls settles lawsuit over parcel where hotel is planned by Hamister

NIAGARA FALLS – The city has settled a lawsuit that was filed last week over control of a downtown parcel that is slated to become a $35.7 million hotel.

JD Gifts LLC leases from the city the parcel at 310 Rainbow Blvd., the site where the Hamister Group is planning a six-story Hyatt Place hotel. JD Gifts filed a lawsuit last Thursday alleging the city improperly terminated its lease. The company operates a paid parking lot on the site at the corner of Rainbow Boulevard and Old Falls Street, and subleases part of it to an Indian restaurant.

The dispute was settled Monday after both parties spent several hours in a courtroom in State Supreme Court.

Under the development agreement signed between the city and the Hamister Group’s HH 310 LLC – a contract finalized in November 2013 – the city is allowed to terminate its agreement with JD Gifts after a building permit for the project is issued.

JD Gifts in its lawsuit alleged its agreement requires the party that gets the building permit must be the owner of the property. Since the city is still the owner of the property, and not Hamister, it is not allowed to end JD Gifts’ lease, the company alleged. The lawsuit sought monetary damages and a temporary restraining order against the city.

A building permit for the 128-room hotel was issued to R&P Oak Hill Development, a contractor for Hamister, on June 24. JD Gifts was notified on June 26 the city intended to take possession of the parcel on July 27.

Under terms of the settlement, JD Gifts will be allowed to keep control of the site through Aug. 10, after which it will relinquish control. The company also will receive $45,000, being paid by USA Niagara Development Corp., the state economic development agency which was also a party to the development deal.

City officials have said they plan to transfer ownership of the property to Hamister by Sept. 30, said Kevin A. Szanyi, attorney for JD Gifts. If that transfer happens by then, JD Gifts’ rights to the property would end. If the parcel’s not transferred by then, the lease with his client goes back into effect, Szanyi said.

Lawyers for the city, JD Gifts, the state and Hamister were in court Friday, the day after the suit was filed. Three days later, the matter was resolved.

Mayor Paul A. Dyster, calling the $45,000 amount a “good-will payment” made by the state on behalf of the city, said the resolution ends the litigation and clears the way for the $35 million project.

“We want it to get off to a clean start, with good will among all parties,” Dyster said Wednesday of the quick timing.

This situation is the latest chapter in what’s become a controversial project in the Falls.

In September 2013, the City Council, by a 3-2 vote, agreed to transfer the land and allowed Dyster’s administration to negotiate the development deal.

The Council’s approval for the deal was secured after Gov. Andrew M. Cuomo intervened following a nasty political mailer targeted Mark E. Hamister, and a Cuomo administration representative persuaded one of three councilmen opposing the proposal to support it.

The hotel project has continued to be a political football since then. The proposed design of the hotel has gone through several iterations and is expected to cost more than originally proposed. With early estimates of $22.4 million in costs for the entire project, the scope also included apartments, though that part has been dropped.

When city lawmakers approved the agreement, a groundbreaking was projected for the second half of last year. Last summer, the project’s groundbreaking was pushed to this past spring. Late last year, officials said the project would break ground in June.

The project is receiving $3.85 million in funding from the state, upped from an original $2.75 million after the project’s costs grew. The Hamister Group also is expected to save about $4.25 million over 10 years thanks to tax breaks approved by the Niagara County Industrial Development Agency. The city provided no funding to the project, but agreed to sell the land to Hamister for only $100,000, a sale price which Dyster has said reflects the fact that the city did not put its own cash incentive into the deal.

At the time JD Gifts started leasing the Rainbow Boulevard parcel in June 2009 – after it was used to operate a helium balloon ride – it was owned by developer David Cordish’s Rainbow Square 2 LP.

In late 2010, Cordish donated his downtown property, including the former Rainbow Centre mall and 310 Rainbow Blvd., to the Niagara County Community College Foundation. Niagara County Community College developed the Niagara Falls Culinary Institute in a third of the former mall, and deeded the rest of the mall and the parcel at 310 Rainbow to the city.

After the city took title to the parcel, the lease continued with JD Gifts. In December 2010, the city and JD Gifts agreed upon an amendment to its contract. In 2012, the city and JD Gifts made an agreement over site access after Hamister was chosen as preferred developer for the project.

City codes do not allow for the operation of stand-alone parking lots, which is why a portion of the site also houses a restaurant in a trailer.

The lawsuit along with business filings with the state identify John F. Guido of the City of Tonawanda as the controlling member of the company. JD Gifts also operates a gift shop and cafe on O’Laughlin Drive next to the Hard Rock Café in the Falls.