Delayed Check-Out

Just when it appeared that a majority of Trenton’s City Council was finally prepared to put the brakes on the renovation and transition plans for the City-owned Lafayette Yard Hotel on their own, the State of New Jersey swooped in last night, announced its opposition to any more taxpayer funding “until they receive a copy of a plan from the city with respect to available options for funding and profits — a more comprehensive plan,” and took all the attention. Funny how that works.

During the day yesterday, a printed press report discussed how the public declaration of North Ward Councilwoman Marge Caldwell-Wilson that she would oppose any further City taxpayer financing pretty much meant that this week’s request for $200,000 in transition funds was dead on arrival. Ditto the $3 Million Dollars, minimum, that would be required for the hotel to renovate and upgrade as it converted to a Wyndham Hotels-flagged property.

During a presentation by the Lafayette Yard Community Development Corporation’s (LYCDC) Board Chair, the board’s attorney and other parties  associated with the proposal, the tone of the supplicants was, frankly, rather desperate. “Where we are today is an attempt at survival,” stated David Ong of Acquest Realty Advisors, the longtime asset manager for the hotel that, as far as is known, is expected to remain in place during any possible transition.

The trouble is, both City Council and the State of New Jersey, in the form of the Department of Community Affairs (DCA), seem to be unmoved by the characterization of “an attempt at survival” as serving as any kind of coherent and credible business plan for the future of the hotel. And that is just about where the LYCDC is right now. They have no credible plan to present, just the hope that a new management, and a new flag and set of logos, can turn around the hotel after a dozen years of failure.

DCA’s position was announced to Council last night by City Business Administrator Sam Hutchinson, who also cautioned councilmembers to look at the hotel’s plan most carefully. “Let us not be misled by what could be simply because we’re getting projections. We had projections 13 years ago. We have to be very, very careful with what we’re signing on to.”

Mr. Hutchinson’s words of caution are very relevant, and very timely for this discussion. Four years ago, after a long stretch of disappointing results for the hotel, LYCDC tried another management switch for which it had high, and as it turned out very unrealistic, hopes for what could be achieved with another Fresh Start.

Yesterday, I referred to a memo from April, 2009, written by Caren Franzini, then the Chief Executive Officer of the NJ Economic Development Authority (EDA), to the members of the Authority. Yesterday, I drew attention to the large financial stake the State had made in the long-term financing of the Lafayette Yard Hotel. Today, I will quote at some length another part of Ms. Franzini’s memo, discussing the then-new incoming management:

“In July 2008 LYCDC successfully terminated its operating agreement with Marriott Corporation and replaced the operating entity with the Waterford Group, an experienced management firm of 24 hotels in 8 states inclusive of 14 Marriott locations. Waterford’s success model is built around a regional team approach to managing its locations.

Shortly after signing with Waterford, LYCDC introduced Jeffrey Zieger to Waterford. Jeffrey Zieger, who is local to the area and has over 25 years of experience in the hospitality industry in New Jersey, was hired by Waterford in September.

Since joining Waterford, Zieger has made great strides in advancing the hotel’s operations. Zieger has instituted an aggressive local marketing campaign and has increased revenues steadily even in the weak economic climate.

While it is clear that the hotel’s operations are still challenged, for the first time since the hotel opened, operations are tracking in a positive direction. Jeff Zieger and Waterfront (sic) are committed to working not only with the City but also with State and local government entities to ensure timely reporting, diligent follow-up and candid conversations about the progress surrounding the hotel.   [Emphasis mine – KM]

Didn’t quite turn out that way, did it?

Four years later, we are hearing the same kind of positive expectations for the new managers, Marshall Hotels, and for the hotel under a Wyndham flag. What does LYCDC and Marshall have to back up these expectations?

Almost all that Council, and DCA – who, under the terms of the current Memorandum of Understanding signed by the City has the right to approve or veto any real estate transactions made by the City, especially involving the hotel – have to work with to evaluate the proposal is a set of projections for the next five years made by the outgoing management company, and which have not been updated or replaced by any more recent projections by the new company. No proposal has been made by LYCDC’s team for how the $3 Million-plus Dollars will be financed.

It’s this vague specificity and failure to ask, let alone answer, several important questions about the future of the hotel, that has unsettled several members of Council, and finally moved DCA to intervene.

Frankly, I think DCA’s move is way overdue. The State has from the inception of this project been a major, mostly silent investor. The State financed $14 Million of the original construction cost, financed by long-term bonds that are being serviced by a dedicated Payment in Lieu of Taxes (PILOT) of nearly $2 Million annually that could have helped to support the City’s general budget. In addition, the State is currently on the hook for $9 Million in loans to LYCDC. For these reasons alone, the State should have demanded one or two seats on the Hotel Board; from the very beginning of the hotel, or at the very least in 2008 or 2009, with the change of management. The hotel was a very troubled operation from the beginning, and the State’s repeated failure to protect its investment by exercising a more active role in its management, instead deferring to two hapless City Administrations, is a big black eye for New Jersey.

That’s all past now, unfortunately. As of last night, the State has – finally – decided to intervene, for better or worse. The immediate result of last night’s DCA announcement, along with the direction a majority of Council appeared to be leaning, was to pull the resolution authorizing $200,000 in transition funds from tomorrow’s docket, while everyone considers their next steps.

I hope the next steps will include a decision to scuttle any plan to hire new management and affiliate with a new brand, as well as action to secure a honest and complete valuation of the property and its assets as preparation for a sale to a private owner. I fully expect that, after having finally decided to forcefully intervene in the matter, the State will be sitting at the table during these discussions as a  more active and engaged partner.

It is time for the City of Trenton to get out of the hotel business.