Ten years ago the Palmer administration decided Trenton needed a full service hotel.    With the help of a group of boosters, including local businessman Shelly Zeiger , the administration shopped the idea around to investors. No one bought.  That didn’t stop this group.  They convinced the city and the state to fund a $46,000,000 hotel with a Marriott brand. 

The city effectively owns the hotel and manages it through a non-profit entity called the Lafayette Yard Community Development Corporation (LYDC).    The Mayor appoints the board and during the Palmer administration it was largely controlled by the city business administrator. 

A new year and a new political reality

Mayor Mack has appointed a new board and surprisingly included me on it along with Paul Anzano, Mike McGrath, Audrey Walker, Bill Watson and Cleve Christie (Chair).   In addition to the board, there is an asset manager, Acquest who represents the city’s ownership interests, a property manager, Waterford that runs the hotel and hires the GM (Jeff Zeiger – Shelly’s son) and an attorney for the board, Hill Wallack, who advises the board and organizes the board’s agenda and minutes.

Some of the people originally involved in getting Trenton into the hotel business are still involved including Bill Watson who’s still on the board and is also chair of the Trenton Parking Authority which has loaned the LYDC about $6M.  Shelly Zeiger is a consultant to Acquest though I’m not yet clear what his duties are.  Rocky Peterson of Hill Wallack is still involved.  Acquest itself was involved in the original decision to invest in the hotel.

Marriott does NOT own this hotel. 

This City of Trenton is the owner by virtue of its guarantee of $15M in revenue bonds.  Marriott was originally brought in to do two things, 

1. Manage the hotel and
2. Lend its name and operational support through a franchise agreement

Many hotels are run like this.  Investors will own the property, hire a third party to manage it and enter in to a franchise agreement with a chain (Marriott, Sheraton, Hilton) to provide branding, standards and national support (i.e. web site, advertising). 

Ten years later, Marriott no longer manages the property andWaterford was brought in 2 years ago to run the hotel.   The Marriott franchise agreement will expire in 3 years.

Palmer‘s plan didn’t work out. 

Now in addition to the $55M municipal budget deficit Mayor Palmer has left the city, he and his friends have also left us a mountain of debt on a hotel that is struggling to achieve profitability.

There’s a lot to say about the decision for a government to get into the hotel business, but its behind us now and we need to clean up the mess.  Needless to say, it was a reckless adventure funded with taxpayer dollars. 

The hotel’s situation is a challenge.

The City of Trenton is currently in debt to the tune of $15M on the hotel.  The Trenton Parking authority is owed $6.3M, the State of NJ (through various departments) is owed $8.2M and Acquest is owed $1M in back fees.  In total, the LYDC owes about $30M.

Our hotel, like the rest of the industry, has suffered through the recession.  For 2010, the LYDC will lose about $450K on $7M in revenue.  The hotel is projected to turn a small profit in 2011 but this is before debt payments of $1.3M to Trenton’s bond holders need to be made in 2011.  This payment will come from Trenton taxpayers.

The state and Trenton’s Parking Authority haven’t been very aggressive about getting their money back or even getting interest payments (thankfully) but the private revenue bond holders are dead serious about getting their money. 

Just to put this in perspective, if you’re a Trenton homeowner with a $100,000 home, of that $15M in city debt on the hotel, you’re personally on the hook for $790.  Mayor Palmer may have gotten us into this mess but now we’re all in it together.

So where do we go from here?

It’s not clear that the LYDC has ever been allowed to pull all the levers at its disposal to run a profitable business.  It’s not clear that Trentonians have ever understood that they have a financial interest in the hotel.

The LYDC board is forming a strategy to fix the ship and find a new owner

Mayor Mack wants to get out of the hotel business but it’s up to taxpayers to help make the hotel an attractive acquisition target.  This will require the board and management company to:

• Reevaluate its assumptions in order to generate profit
• Reengage the community to replace bad experiences with great new ones
• Find a new investment partner for Trenton

The board is working with Waterford and Acquest to find the operational sweet spot. 

Hotels operate in various niche segments each with their own set of operational assumptions.  For example, a budget hotel may operate with minimal staff and offer no incremental services (like room service).  A full service hotel typically has a restaurant, room service, meeting and convention space and accordingly, more staff.  Marriott, Sheraton and Hilton (and to a lesser degree Choice) have many different brands that fill the spectrum of hotel niches.  Marriott’s brands (Fairfield, Courtyard, Residence Inn and the Marriott flagship) fill different price and service needs in the market. 

The Trenton Marriott is a full service hotel and is therefore meant to offer a high level of service for a commensurate price.  As such, it maintains staffing levels meant to provide that enhanced level of service per the Marriott franchise agreement.

In addition to requirements placed on the hotel by Marriott, our hotel has also had various political pressures placed on it over the years.  It’s quite likely that while well meaning, this kind of pressure has been uneconomic for the hotel.

The new LYDC board and its advisors will challenge previous assumptions and look for a business model and budget that is more in tune with the Trenton market.   The good news is that we have an aggressive board teaming with an aggressive asset manager to make this happen. 

The hotel is reengaging with the Trenton community

There is no doubt having a hotel in the heart of our city is a good thing for residents.

Trenton’s hotel is a great space in a great location.  However it does have competitive pressure along many dimensions.  It competes with nearby hotels on Rt. 1, Pennsylvania and the nearby Marriott Courtyard for room-stays.   It competes with those same hotels and various other banquet facilities for meetings and parties. And it competes against every bar and restaurant in the area for food service.

Unfortunately, over the years the Trenton Marriott has built up a reputation for bad service with the local population.  This happened for a variety of reasons.  It’s now time for Waterford to turn the corner on customer satisfaction. 

As a board member, I’m taking the position that our hotel will be successful if the local population sees it as a destination.  It can and should be the coolest spot in Mercer County.  If we feel that we can recommend it for food, drinks and catered functions then we’ll also recommend it to out of town visitors.  Look for marketing efforts seeking to get local residents back to Archives Restaurant and the meeting spaces this year.

To that end, with the hotel management, I’m helping organize a focus group made up of local dining enthusiasts to recommend changes.  If you eat out a lot and would like to help, let me know.

We’ll give it wings and put this great asset in private hands where it belongs.

For now, Mayor Mack has stayed out of micromanaging the hotel.  Instead he’s appointed a relatively active board.  The Mayor has also given clear direction to all of the board members to get Trenton out of the hotel business. 

No city should be in the hotel business in the first place so it’s only sensible to want to get out of it.   Trenton’s hotel has a lot of upside to offer private investors.  It comes in three ways:

1. The hotel can be run better as a private enterprise rather than a quasi-public one.  For instance, a new owner will be able to start over in its labor negotiations.
2. It can better leverage its business related to the State of NJ and our local market. 
3. The hotel location will be in the center of Trentons’s eventual revitalization.  This is a more speculative upside of course.

Coming out of a recession, Trenton’s hotel is an attractive asset with agreeable debt holders and quite a lot of upside and in a market which a new owner can control.

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