The Hot-L Trenton

Back in 2003, the city of Baltimore assessed its ability to draw in conventions and meetings, and the dollars that business visitors to the city would bring. As part of the city’s effort, a plan to build a city-owned convention-center hotel was developed. Over the next two years, proposals were drawn up, bids solicited, and alternatives debated by Baltimore’s government, civic and business leaders, and the public.

On the eve of a City Council meeting in August 2005 that would give that body’s approval to the winning proposal, the Baltimore Sun ran an article that examined other contemporary examples of municipally-owned hotels in several other cities nationwide. Towns such as Myrtle Beach, SC; Saint Louis, MO; Omaha, NE; Overland Park, KS; Houston and Austin, TX; were all mentioned and discussed in the article.

With the possible exception of those last two cities, all of the city-owned hotels were described by The Sun as “Failing hotels.” Although each town’s experience as municipal innkeeper was somewhat different owing to local conditions and circumstances, there were a few common themes.

One hotel consultant, Bruce Walker of the firm Source Strategies, was described by The Sun as “saying that telling hard-luck cities that if they spend public money on convention center hotels, meeting planners will knock down their doors is tantamount to fraud.”

And “Heywood Sanders, a professor in Texas [at the University of Texas at San Antonio]  with a doctorate from Harvard, will talk anyone’s ear off about that uncertainty and the ‘folly’ of cities building hotels. He has published report after report on the ‘heartbreak’ of watching money that could revitalize downtown areas or bolster visitors bureaus instead bailing out Hyatts or Sheratons.” He also was quoted as saying, “I don’t relish the role of Official Cold Water Thrower. It’s just that I have a long list of cities where this doesn’t work. Why is it going to be different [in Baltimore]?”

According to The Sun on the eve of City Council’s 2005 approving vote, supporters of the hotel proposal were optimistic.

“Though it would be Baltimore’s costliest public project, Mayor [now Maryland Governor]  Martin O’Malley and the hotel’s other fans say paying for it with $305 million in revenue bonds is not only is a bargain, but it’s also all but risk-free…

Undaunted, hotel proponents here want their Hilton. Unleash the floodgates of meetings business, they say, watch the prosperity spill over into the entire downtown market, count the extra dollars, the sheer profit, that will roll into the city’s coffers.”

So, how did the hotel work out for the City of Baltimore? How big was the “sheer profit?”

Fast forward to 2012. CBS station WJZ ran a report on May 24, 2012, that began, “A new report shows a hotel owned by Baltimore City is in the red, losing nearly $54 million since it opened in 2008.” [Emphasis mine – KM]

How come? The article mentions a lot of factors. Optimistic and too-rosy projections, the loss of business in the face of the lingering Great Recession of 2008, and even problems with the perceptions and images of Baltimore created by shows such as “The Wire.”

Some, though, were optimistic about the hotel’s future. A spokesperson from Visit Baltimore is quoted as saying “We’re encouraged that things are starting to turn around.” And a hotel visitor said, “It’s one of the nicer hotels I stayed in, actually.”

However, the concluding paragraphs contain this sobering statement: “But developers admit they have no idea when they will begin to make a profit and say if they stop making enough to cover bills, they’ll start dipping into reserves.”

This kind of history in cities other than Trenton should be kept in mind as  we consider the future of the Lafayette Yard Hotel, currently a Marriott until June of this year. Last week, Chairman Cleve Christie of the Lafayette Yard Community Development Corporation (LYCDC) formally requested $295,000 in cash flow assistance from Trenton City Council, to tide it over during a proposed transition in branding (to a Wyndham Hotel) and management.

Mr. Christie submitted several documents to Council to support his request. Thanks to Jim Carlucci, several of these are available online. This narrative history of the hotel’s financial experience since opening, describes a modest success during the mid 2000’s in earning yearly revenues around $10 Million, although that high-water level of revenue dove to around $6 Million annually in the most recent Recession years.

The report describes a couple of years of modest profits after expenses, of $8,000 and $80,000, before multiple years of losses in the hundreds of thousands.

In none of the years since the hotel has been opened have earnings been available to contribute to paying any of the Hotel’s long-term debt. That amount is described in the report as standing at $30,608,417. Most of that debt is to the City of Trenton, in the form of $14,050,000 in City Bonds and a Note Payable to the city’s Parking Authority of $7,396,259. The remainder is due to a few different entities of the State of New Jersey.

The other documents – some Financial Statements as of the end of January 2013, and a Cash Flow forecast for the entire year of 2013 – provide a glimpse at the sad condition of our city-owned hotel.

The hotel earned a loss of -$132,655 in January. But that’s not as bad as what had been budgeted, -$133,985.

Yes, the hotel is budgeting to lose money. It has gotten to that point.

And that January result shows a marked deterioration from January 2012, when operations lost “only” -$88,221, an increased loss of 50% from 2012.

No budget figures for the remainder of 2013 were made available, but the cash flow statement shows that for the 12 months of the year, the hotel expects to bring in more cash than it expects to spend for only four months, and to lose cash the other eight months.

Can any business last for long like this?

Can the taxpayers of the City of Trenton afford another $295,000 this year to support an operation that does not even show any projections that it can cover its day-to-day costs, let alone start to pay over $30 Million in debt?

And can this City even begin to scrape together the money that will be needed to renovate and upgrade this hotel to re-brand it as a Wyndham? Trenton’s Business Administrator Sam Hutchinson guesstimated this might cost $3 Million. The hotel’s own report quotes “$2.5 million to $4 million dollars.”

Can we? Or is it finally time to talk about closing down this hotel, and getting out of the innkeeping business? Can a City-owned hotel work here?

It hasn’t worked in Baltimore. It hasn’t worked in Myrtle Beach. It hasn’t worked in Omaha. It hasn’t worked in Overland Park.

It hasn’t worked in Trenton. It is not about to turn around now, or any time in our lifetimes.