“It’s Probably a Lower-End Number”

What is?

$2.4 Million Dollars. It’s probably a lower-end number.

For what?

To renovate Trenton’s Lafayette Yard Hotel, if the City decides to sign on with Marshall Hotels & Resorts as the Management Company for the hotel when and if it is re-branded as a Wyndham Hotel in June of this year. It’s a Marriott hotel now, but that brand and the current management company will say Adios to Trenton on June 14.

Where did that number come from?

A gentleman named Michael Getzey, described by the Trentonian this morning as the president of the construction division for Marshall.

That is a lot of money. But that’s what it will take to fully renovate the place and turn it into a Wyndham?

Not exactly. There’s another $600,000 in transition costs specifically related to costs associated with swapping out all of the Marriott signage and logos for Wyndham, integrate the hotel’s IT systems with Wyndham’s and Marshall’s, and the like.

Could they save money by just turning all the Marriott M’s upside down?

That’s not a bad idea! I’m glad you’re thinking of saving money. The Board overseeing the hotel – the Lafayette Yard Community Development Corporation (LYCDC) – is all about saving money. I read in the Trentonian that the LYCDC Board also switched attorneys. The new law firm is Wong Fleming of Princeton, who will charge $175 an hour for their services.

Man, that’s steep!

Lawyers aren’t inexpensive, my friend. But that’s a whole lot better than the previous firm. I hear we paid Hill Wallack a cool $500 an hour for their lawyer Rocky Peterson.

WHAT?!?  How much???

$500 an hour. For all his services including attending board meetings, attending City Council sessions, and everything in between. But a first-class successful joint like Lafayette Yard needed first-class support all around its operation.

What do you mean successful? I thought the hotel was losing money!

Oh, it is. Hand over fist. I was just joking.

But that $3 Million will turn the place around?

The $3 Million, plus $300,000 we gave the hotel last month to provide some working capital for the hotel during the transition, should help.

Help? Help? I would hope that would be the last money we’d have to sink into the hotel. What does the new management company project for the future after they take over?

I don’t know that they’ve crunched their own numbers. In a presentation they made to City Council last month, Marshall relied on a 5-year projection made by the Waterford Group, the current management company leaving in June.

That projection forecasts that the hotel will be very profitable by 2017, boosted by an immediate twenty-five percent rise in guest room income in the next year, after Marshall takes over.

Wow! Twenty-five percent more guest room revenue in one year. Marshall must be planning some pretty cool room renovations!

Actually, they aren’t. According to another guy quoted in the newspaper, Bradley Moore, who works for an interior design company associated with Marshall, the rooms don’t need too much: “As far as guest rooms, Moore doesn’t feel a total makeover is needed. He stated the some of the repairs would happen in bathrooms, which need all new mirrors, light fixtures, wall vinyl and towel racks. ‘At that point, you’re done,’ he said. ‘If you spend another dime in that room, it’s a dime too much.’

Really? All the plumbing stays?

Seems like. Oh, according to the Trentonian he also said “Replacing carpeting, beds, lighting and chairs in the rooms were also in the [plan].”

So where is all the construction going to take place?

In the bar.

The bar?

The bar. Again according to Moore in the Trentonian,

“You’re a full service hotel, but essentially you don’t have a bar,” said Moore, who works for a company that has collaborated on projects with Marshall for 20 years. “You’ve got what amounts to a small pub that has a food court feel to it that’s a well-kept secret.”

Moore said the only construction demolition planned for downstairs would be the bar/lounge to help create a better connection to the lobby, so there is more activity. He claims the expectations are high from outside the hotel, but “the minute you walk in, it’s just tired.”

“That’s going to be the hub,” Moore said. “I have no interest in coming in here and just arbitrarily changing the cosmetics. I think if we can change some of the dynamics and the use of the hotel for the guest, then I think we’re onto something.”

So let me get this straight: according to the financial presentation created by Waterford and also adopted by Marshall, the five-year plan for success for the hotel is based primarily on a huge increase in guest room revenue?

Right. From a projected $3,353,626 in 2013 all the way up to $5,016,071 in 2017. All in guest room revenue.

What is the bar projected to bring in?

From a 2013 base of $298,567, beverage income is forecast to rise to $342,565 in 2017.

It seems to me that this emphasis in the newspaper article on the bar might be kind of misplaced.

Well, hey, you heard the man: after you spruce up the bathroom, “At that point, you’re done. If you spend another dime in that room, it’s a dime too much.” You have to “change some of the dynamics” for the hotel, and that means the bar, I guess.

Why haven’t “the dynamics” of the hotel been changed before this?

Well, in a “Historical Financial Review” prepared by the LYCDC Board in February of this year, the major problem for the hotel was not internal. It was a overall “market weakness in Trenton,” the major factors of which were described by the Board as

• No large businesses in Trenton
• The city lacked the socio-economic diversity to realize revenues
• Negative press – front page reporting of violence and crimes that are a deterrent for people to come into Trenton.

Wow. That’s not going to change for the Hotel with just a new brand and new management, is it.

Nope. This is still downtown Trenton. The success of the hotel depends on the success of downtown. Not the other way around. The LYCDC admits this was the reason for the hotel’s failure up until now. This will not change in the future. It would be foolish to expect otherwise.

Back to this $2.4 Million.

$ 3 Million.

Right, $3 Million. Plus the $300,000. Where will this come from?

Good question! The $300,000 was granted by City Council from the City’s current year budget.

Ouch. What about the $3 Million?

Well, that would be a lot of money for next year’s budget to handle. We’re likely looking at another large deficit, as the State is reducing its Transitional Aid funds, and eliminating millions of other dollars it’s previously paid as Payments in Lieu of Taxes, for non-taxable buildings the State owns in town.

The $3 Million would probably have to be funded from the proceeds of the sale of long-term bonds. This would create long-term debt for the hotel.

That’s a lot of money. But if the hotel becomes profitable, it would be able to pay off the debt, wouldn’t it?

Well, it hasn’t up until now.

The Hotel currently owes almost $31 Million right now, money it hasn’t been able to begin to pay off  in the 13 years it’s been open.

Thirty-One MILLION Dollars in Debt?!?

That’s so far. We owe $14 Million in bonds already outstanding, $7.4 Million to the Trenton Parking Authority, and the remaining nearly $10 Million to the State of New Jersey (to various state entities).

So another $3 Million in Debt would raise that number to…

A total of $34 Million Dollars.

Whoa! What does the State think about this?

They seem to think that as long as the City “develop minimum skill requirements for new members” to serve on the LYCDC Board, that is enough for them. At least, that’s the only reference to the Hotel made by the state Department of Community Affairs in this year’s Memorandum of Understanding, which the City signed in order to receive this year’s Transitional Aid.

I would be a lot more worried,  if I were the State. After all, this is taxpayer money we’re talking about.

The ways of the State of New Jersey are mysterious and inscrutable, my friend. Besides, if I were the State of New Jersey, I’d be worried about a lot more in Trenton than just the hotel, you know what I’m saying?

I do. After reading that newspaper article, AND looking at the wildly over-optimistic financial projections, AND thinking about the “market weakness” in Trenton that will not change just because the hotel is open, AND thinking about all the debt we have already not even including $3 Million in new debt…

Remember, that’s only “a lower-end number!”

Wow, that means it could easily go even higher! After thinking about all that, I don’t know that going ahead with the Wyndham deal makes a lot of sense. What’s the alternative?

Close the hotel. Sell it for whatever the market will bear and let a new operator take the risk. Either that, or risk another $3 Million – at least – plus any new operating losses that we may see in case a new bar doesn’t pack ’em in.

You know, I think you’re probably right.We should close the hotel. Now. Before we burn more taxpayer money, from the City and the State, in a hopeless attempt to turn around in the next five years what never worked in the last thirteen.

Are you sure we can’t just turn all the M’s upside down????