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State pays $25 million for 'Smokin Joe's' Niagara Falls properties

For two decades, Tuscarora businessman Joseph "Smokin Joe" Anderson tried to place his stamp on downtown Niagara Falls.

He bought dozens of pieces of real estate, including two hotels, and tried to establish Native American-themed attractions and even a year-round snow park.

On Wednesday, Anderson's effort ended when the state agreed to buy all 32 of his downtown Niagara Falls properties for $25.7 million from its Buffalo Billion II economic development fund.

The state will try to find other buyers to do what Anderson couldn't – revive a chunk of Niagara Falls' downtown core, said Christopher J. Schoepflin, president of USA Niagara Development Corp., the local arm of Empire State Development.

City officials said the 11-acre purchase is the largest state real estate deal in downtown Niagara Falls since the state turned over 54 acres to the Senecas for the casino in 2003.

Assuming the deal doesn't fall through during a 120-day due diligence period, the purchase of Anderson's properties will include two working hotels, the Quality Hotel and Suites on First Street and the Rodeway Inn on Main Street, along with several buildings on Third Street that have been used as nightclubs and restaurants in recent years, and the former Niagara Mohawk office building.

The state also is acquiring 18 vacant lots and four parking lots, mostly on First, Second and Third streets not far from the Seneca Niagara Resort & Casino.

Anderson, who operates Smokin Joes Trading Post on the Tuscarora Nation, isn't the biggest private landowner in downtown Niagara Falls. That would be Howard Milstein's Niagara Falls Redevelopment, which holds about 142 largely vacant acres.

But Anderson, who did not return calls seeking comment, is a local figure who invested millions in the city with little immediate return.

Michael Williamson, a member of the USA Niagara board, called the purchase a "unique opportunity" for a small municipality like the City of Niagara Falls.

"Being in Niagara Falls these 20 years or so when Mr. Anderson was acquiring these properties and what his proposals were and how they failed, it's almost as if we're rewarding him for not being a good landlord," Williamson said. "But I think it's an opportunity that would be hard to pass up."

Noting that Anderson's properties run through the center of the city's downtown tourism district, Schoepflin said it was "hard for us to imagine a more impactful transaction."

"Joe really put some money downtown," Assemblyman Angelo J. Morinello, R-Niagara Falls, said of Anderson. "He tried some innovative attractions that would have benefited everybody. Joe did what he could. He tried very hard. He kept his properties clear and clean."

Cuomo pushes to redevelop prime Niagara Falls properties

The Anderson parcels are largely concentrated within easy walking distance of the Seneca Niagara Resort & Casino and Niagara Falls State Park, including three acres on Falls Street and the four-acre snow park on Second Street. Schoepflin called the snow park a candidate for early demolition.

Schoepflin said he expects the deal to close in late December or early in 2019.

"What we really want is to build a dense, compact set of buildings with a diversity of ownership, diversity of use," Schoepflin said. "So does that mean mixed-use urban, active ground-level uses, upper-level residential? There'll certainly be some entertainment product in a tourism geography like downtown Niagara Falls."

Morinello said there are other downtown parcels he would like the state agency to address in the future.

"This is a good start," Morinello said. "I trust that they will focus on smaller, attainable developments with this property, rather than shooting for the grandiose grand slams that never happen."

Paladino wants hotel

Schoepflin's agency will issue requests for proposals to prospective purchasers of the properties, and one is likely to go to Carl Paladino's Ellicott Development.

Paladino said Wednesday he had been talking to Anderson about buying the Quality Hotel and Suites.

"The negotiation basically ended when the state came in with an offer," Paladino said. "We, being the next-door neighbor, would like a fair opportunity to buy it."

The Quality Hotel and Suites is next door to the Giacomo, a hotel and residential tower owned by Paladino, whose tenants include the offices of USA Niagara Development.

He said he's already sent the state a letter expressing interest, but Schoepflin said the RFP process will have to be followed.

Paladino said his idea is to keep one wing of the Quality Hotel and Suites and demolish the other, replacing it with a mixed-use tower of hotel rooms, offices, apartments and possible retail.

"We're developers. We do it as best we can without any special state subsidy," Paladino said.

Appraising the purchase

Documents posted online by USA Niagara say the state agency obtained two independent appraisals of the Anderson properties. The USA Niagara board agreed to pay the higher of the two figures: $25,755,000. The lower appraisal was $24,385,000.

Schoepflin said the appraisals of the individual properties won't be released until after closing.

"The Anderson portfolio is so vast, it presented a really unique and compelling possibility," Schoepflin said. "It's not ideal to acquire operating properties, but it's not impossible. We know how to do it."

State agency buys 1.2-acre lot in downtown Niagara Falls

The state intends to seek bids from third-party operators to run the two hotels, as it did for the Conference Center Niagara Falls, a state-owned meeting facility, Schoepflin said. USA Niagara will have the ability to negotiate new franchise agreements for the hotels.

Schoepflin said the revenue from the hotels would be used to reimburse the state for the cost of insuring and maintaining the Anderson properties until they are resold, a cost estimated at $300,000 a year. Schoepflin said the Quality Hotel and Suites might net about $1 million a year.

The purchases include four mostly vacant buildings on Third Street, a commercial street the state and city have been attempting to redevelop for years with the help of state grants and other incentives. Anderson's parcels on Third Street include such former nightclubs as Club Ultra, Ice House, RUST and Woodshed, and the current Donatello's Restaurant.

The Third Street sites are likely to be the ones offered for sale first, Schoepflin said.

Mayor Paul A. Dyster said the city, county and school tax bills for all the Anderson properties total less than $600,000, and they will go off the tax rolls when the state acquires them. He acknowledged that there are no arrangements yet for making up that revenue loss. Schoepflin said that will be looked at during the due diligence period, but Dyster didn't seem too worried about it.

Even if the new owners got tax incentives, Dyster said he was confident the reuses would bring in far more revenue than Anderson was paying.

"If operating a bunch of vacant lots was going to make you rich in property taxes, the City of Niagara Falls would be flush with cash," Dyster said.

Available for development

Gov. Andrew M. Cuomo announced a Niagara Falls property acquisition program in January 2017 that called for buying up real estate in downtown Niagara Falls and making it available for redevelopment.

A memorandum from Schoepflin to the USA Niagara board said that a strategic land disposition plan will be crafted in cooperation with the City of Niagara Falls and the University at Buffalo Regional Institute.

Dyster said several successful economic development projects in Niagara Falls, including the Niagara County Community College Culinary Institute, the Hyatt Place Hotel and the planned reopening of the Hotel Niagara, all began with transfers of private property to government agencies.

He said a long-range view calls for development near the borders of the state parks, after the removal of the Niagara Scenic Parkway along the Niagara River Gorge, the development of the Riverwalk along the upper river, and other state initiatives.

"In order for that to take place, those properties have to be available for development," Dyster said. "It makes sense for both the city and the state to shuffle the deck and come up with a new strategy going forward."

Anthony Vilardo, the city's business development director, said there are no specific uses planned for the properties yet, but said the city would "work hand-in-hand with the state on the redevelopment of our downtown."

Terms require USA Niagara to put down a $500,000 refundable deposit within 30 days and to pay the remainder after the 120-day "due diligence" period, which is to include environmental assessments and "hotel operations analyses."

After that, the sale is to close within 60 days. USA Niagara intends to competitively resell all the properties, the documents say, but the board's proposed action includes $1.25 million in expenses, including three years of property maintenance and insurance costs.

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