The $295,000 Decision Worth $3 Million Dollars

Let’s be absolutely clear about one thing, up front. The headlines this morning say “Trenton Marriott demands $295K from city council or hotel goes dark,” and “City needs to come up with nearly $300K or possibly lose the hotel.” But this is not the amount of money that is at issue before Trenton’s City Council.

Immediately, possibly as early as tomorrow, Council may vote on granting $295,000 in cash to the Lafayette Yard Community Development Corporation (LYCDC) in working capital, to assist the management of the downtown Hotel in paying some critical payables, and provide enough cash until (and maybe if) business picks up in the spring and summer months. This cash is critical, we are told, to keep the doors of the hotel open for the next three months. Otherwise, the Marriott Corporation will cancel its franchise license with us immediately, and the Waterford Group – the hotel’s management company – will cancel its contract and close the hotel down.

But any vote to give the hotel another $295,000 in cash makes sense only – I repeat, ONLY – if the City wants the hotel to stay open, which after June of this year will mean open as a Wyndham Hotel, with a new management company.

And THAT decision will mean a commitment for more funding from the City of Trenton of anywhere from $2 Million to $3 Million Dollars, or more. No one has prepared a detailed budget for the renovation and other administrative changes needed to convert the hotel from Marriott to Wyndham, so this is the best estimate we will get before decisions have to be made.

That is what City Council will vote on tomorrow. $3 Million or more of the City’s – meaning taxpayers’ – dollars.

At last night’s City Council meeting, representatives from the LYCDC Board and its attorney made a presentation about the situation at the hotel. Council also heard from reps from Michael Marshall, the head of the potential new management company, Marshall Hotels and Resorts, selected by the hotel Board to run the Wyndham if Council votes to proceed.

The board’s attorney, Rocky Peterson wanted Council to focus mostly on the immediate cash call, the $295,000, saying “We’re here to talk about the future but we have a short-term problem that has to be addressed.” Should Council fail to vote the money, the hotel would close immediately, dozens of hotel employees will be laid off, and hundreds of thousands of dollars in bills (including a hefty $116,000 to the Trenton Parking Authority) will go unpaid. The Erin Duffy piece in this morning’s Times calls this “a doomsday scenario.”

But what happens if we pay the $295,000, and then decide sometime in the next three months that we cannot afford the money to renovate the hotel? Under that scenario, in three months, dozens of hotel employees are laid off, and hundreds of thousands of dollars in new bills incurred during operations now through June will go unpaid (and that assumes suppliers are still willing to do business with the hotel). The same exact scenario we face now. Except the City of Trenton will have paid another $295,000 on top of everything else.

So if we foresee the same shut-down scenario in June as we face now, why spend all that extra money in March if it will only go down the drain?

Once again, the only scenario in which the $295,000 cash call makes sense is if we decide to keep the hotel open as a Wyndham. The  solution to Rocky Peterson’s “short term problem” makes sense only if we commit, now, to the long term. And that means millions of more dollars from the City of Trenton.

Oh, in his presentation last night Mr. Marshall said his company “is trying to find a lender to finance the renovation, but the city may have to eventually cough up more money to cover it.” [Emphasis mine – KM] He is unable to guarantee at this point in time – and I certainly understand that he had to be somewhat vague and non-committal – that any source of financing other than the City of Trenton would be available. He did offer, according to Ms. Duffy, that “Wyndham is allowing some flexibility to stagger the renovations over a 12 to 18 month period to get it up to Wyndham standards, but the work will have to be done.” The $3 Million might need not to be paid entirely upfront, but in stages. But even in an installment situation, making any payment of a half or a quarter at a time makes sense only in the context of going full-in on the decision to keep the doors of the hotel open as a Wyndham.

So, what kind of future could we expect for the hotel, under a new brand and new management? Again, Mr. Marshall couldn’t be specific; he can’t predict the future. He said, “This hotel used to do $10 million a year in revenue. Do I think we can get back there? Yes. Do my numbers show that? Absolutely not. The operating margins will be a lot different.” That’s really all that we could expect the man to say at this point.

Is that enough of a basis on which to commit to the future of the hotel, with an accompanying commitment of several more millions of City of Trenton taxpayer dollars? Because, again, that is what Council will be considering tomorrow, when they vote on the immediate matter of $295,000. Is it enough?

I don’t think so. The financial experience we have had with the hotel over the last decade has not been a good one. The place is a money pit, and will remain one during any future as a Wyndham. The environment in which the  hotel is situated – downtown Trenton – will not provide any boost to the hotel’s fortunes.

The current hotel management, in a narrative history prepared for City Council last month, described how the lack of large corporate business in downtown, the City’s lack of socio-economic diversity, and Trenton’s high crime rate and image problems have all contributed to the ongoing failure of the Hotel to achieve success. This environment will not change, at least not in time to make a Wyndham/Marshall hotel prosper where a Marriott/Waterford joint couldn’t. It just won’t happen.

To its credit, Mr. Marshall did tout his company’s record in turning around under-performing hotels, boosting revenues and occupancy rates in markets such as Cleveland, Brooklyn, Virginia Beach, Pittsburgh, and closer to home, Morristown and Mount Laurel.  That does count for something.

But $3 Million Dollars worth? And maybe more?  I have to say no.

We know how unsuccessful Lafayette Yard has been, over the years. I have previously talked about examples of other city-owned hotels and the mixed, mostly unsuccessful histories they share. Those examples do not give me the confidence to think that Marshall and Wyndham will help the Lafayette Yard to, finally after all these years, thrive.

If Council votes on the $295,000, tomorrow or next week, I hope the body votes No. The members will save us $3 Million Dollars by doing so.