A new year and a new attitude at our hotel

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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7 Responses to “A new year and a new attitude at our hotel”

  • David:

    Wow – worse than I’d expected. Shelly Zeiger has done a number of good things for Trenton, but the implementation on this one appears to have been awful. Good luck, and make sure your board has good insurance and good counsel. I think your “local destination” strategy makes sense, and ties in with the rest of your vision for a Trenton revitalized by those who have even a little money to spend. In the end a hotel is a retail establishment, and markets get the retail they “deserve” through their earning and spending power. I don’t know if food service is typically a profit center for a private hotel investor, but if it’s not key to those you approach, you might consider splitting out that function and franchising it to a local, Trenton-based caterer who has the capacity to build their business and also bring client loyalty with them. Or possibly a joint venture between a cash equity investor and a local caterer contributing sweat. I think you’re going to need a community tie-in like this to generate the kind of local business you’ve identified as key. Or even a JV with *two* caterers, one with close ties to the African American community and the other with the Italian American. That could be really cool. Just my two cents.

  • Wow. Can you say “The Palmer Homes at Lafayette Yard?” It will go well with “The Broad Street Bank Homes” up on E. State.

  • Excellent article, Dan. Thanks to you, Michael and your fellow board members for your service and diligence.

    I have one point to clarify, based on my attendance at a LYDC board meeting a few months ago.

    You state that the franchise agreement with Marriott expires in three years. Not only will it expire, but Marriott has already stated that they will not renew the franchise agreement. This means that all branding of the hotel as a “Marriott” will cease.

    To remain as any kind of competitive hotel venture, some franchise agreement with a national chain will have to be in place. Otherwise we will have an orphan hotel competing with all of the Route 1, PA and other properties surrounding us. Not good.

    Given all of the problems you identify, I imagine it will be very difficult to land a new franchise deal. But it will be crucial to the future of the hotel, and our prospects of getting out of the hotel business.

  • Mike Taylor:

    Outstanding overview of the situation. As a downtown property owner I have a vested interest in the overall downtown picture. However, without a drastic change in the scale and quality of business workers/offices, residential, and night life, the hotel will struggle.

  • Aladdin Sarsippius Sulemanagic Jackson III:

    Let me take a wild guess the above mentioned one Mr.Shelly Zeiger was also involved in the ORIGINAL Hotel-Motel that Trenton could not support the FAILED Holiday Inn on West State.
    Astonishingly he and his cronies magically found a sucker to buy the (undisclosed)asbestos laden structure and then tried to get paid $23,000 per.year doing for all intents and purposes NOTHING for 16 more years.

    From just 20 minutes of looking into this guy/son I see a pattern of mooching,ripping off venture capitalists,and greasing the right palms and of course LEGAL actions to prevent clawback of numerous scams and ill gotten gains.
    Then he got his son into the game in his next born to lose Trenton based scam.
    Pizza shop chain in Russia fail?

    Get me to the Carribean island to relax this is too easy.

    S.Z gave Trenton a brand spanking new WHITE ELEPHANT in the form of
    a circling the drain $46,000,000 “brand name hotel” now you have his son as the GM of said elephant?

    Do something fast or J.Z. will do to the Hotel what he helped accomplish with his “assistance” to Trenton’s Heritage Days.
    God help T-Town this guy counts his scamboogerous father
    as a mentor.

    [sarc]Long live the Zeiger,Palmer,Plumeri,Prunetti,Toricelli dynasty’s![/sarc],………..in art and labor

  • Bob O'Connor:

    Poor design of the hotel is one of the reasons for its continuing demise. The restaurant and bar should be visible from the street front attracting
    people walking by. The parking garage which takes up a full block of prime real estate has more visibility than the hotel for goodness sake! I also think the traffic pattern in that area should be rethought. It is a disaster. And would someone, anyone, take down the big heap of crumbling, rotting eyesore on the corner of West State and Calhoun St. Doesn’t anybody care what the city looks like. What about the liability of that place! A rebirth, what a joke!

  • [...] It’s been almost two years since I wrote my first article about the Trenton Marriott shortly after I joined the Lafayette Yard Development Corporation board (LYDC).   which oversees the hotel on behalf of the city.  At the time in 2010, I was encouraged that a new Board would take aggressive action to get us out from under the hotel’s debt burden and operational risk.   A new year and a new attitude at our hotel [...]

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