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Lord Amherst hotel renovation in limbo after Amherst IDA turns down extra tax breaks

The renovation of the Lord Amherst Hotel into a high-end boutique hotel is in flux after the developer’s bid for an extra $1.1 million in tax breaks to help cover the expanded scope of the project was turned down by the Amherst Industrial Development Agency on Friday.

The rejection, by a 4-3 vote, raises immediate questions over how the hotel renovation work, which is well underway, will play out after the board rejected arguments that the hotel qualified for tax breaks because it would be a tourism destination and was located in an enhancement zone that the town has targeted for redevelopment.

“We have some decisions to make, and things got complicated today,” said David Chiazza, Iskalo Development’s executive vice president.

“We believe this is something that should have qualified for an inducement,” said Chiazza, who called the rejection “arbitrary and capricious.”

Chiazza declined to say what options Iskalo would consider for the project that already has cost the developer nearly $10 million.

Those options could include scaling back the project to reduce costs or challenging the IDA’s decision in court.

Iskalo won a $1.07 million package of tax breaks from the IDA in December 2012 for its original $9.9 million plan to renovate the Lord Amherst into a midrange hotel and restaurant.

But after Iskalo began work on the project, it found that the building needed much more extensive – and costly – renovations, as well as additional environmental cleanup costs. Those added costs drove up the project’s price tag enough that it made the original midrange hotel and restaurant concept unfeasible, prompting Iskalo to rethink the renovation. In its place, the developer decided to shift the focus of the hotel portion to a 92-room upscale boutique hotel, with a restaurant that would be operated by the developer, rather than a third party as envisioned in the original plan.

That pushed the price of the project up to $19.9 million, and prompted Iskalo to turn to the IDA for $1.1 million in additional tax breaks.

But two things happened between the time of the original project and Friday’s vote that cast the hotel renovation in a different light.

First, the state changed the law governing IDAs to ban tax breaks from most retail projects, although it permits hotels if they are deemed to be a “tourism destination.” The Amherst IDA also adopted a new hotel policy that put additional criteria on the eligibility of hotel projects.

Iskalo argued that the Lord Amherst project still qualified for tax breaks because the law offers a broad interpretation of what a “tourism destination” is. The law does not require a hotel to have a special tourism purpose, such as an attached water park, to qualify for tax breaks. Instead, the law bases the standard for eligibility on whether it attracts people and business from outside the immediate area.

Under that interpretation, the Lord Amherst project qualifies for additional tax breaks, said Terrence M. Gilbride, an attorney representing Iskalo.

“It’s not a vague law,” Gilbride said. “I don’t think it’s a question of whether the project qualifies.”

But IDA board member Michelle Marconi said the hotel is clearly a retail project under state law and is subject to restrictions on tax breaks. She said state law also does not provide for an exception for retail projects in a neighborhood enhancement area.

“The law trumps everything,” she said.

Another opponent, board member Michael Szukala, said there was nothing unique about Iskalo’s hotel that made it stand out as a tourism destination.

“It’s just a high-end hotel. And that’s not a tourist destination,” he said.

James J. Allen, the IDA’s executive director, had recommended that the board approve the tax breaks. A survey by the New York State Economic Development Council found that IDAs across the state have granted tax breaks to 54 hotel projects since the state law changed, including 14 projects in Niagara County.

“What the IDAs across the state are saying is that there are no restrictions on hotels if they’re bringing new people to the market,” Allen said.

“Basically, every hotel is going to qualify as a tourism destination because the people who stay in hotels are generally not local people,” said board member Steven D. Sanders, who voted in favor of the tax breaks.

“You have a project that is clearly inside an enhancement zone and clearly qualifies for the tourism destination carve out,” he said. “You can’t punish someone because they’re taking an economic risk.”

While it is rare for the Amherst IDA to reject tax breaks for projects that come before the board, Allen said he could not recall any other time when the board turned down incentives on a revised project that already had been approved by the agency in its original state.