Friday, May 24, 2013

Think this through

Learning is a life long task. It is the way we acquire the information we need to function.

Decisions should be made after gathering as much information possible.

It follows then, that learning leads to better decision making. (Noting that not everyone will derive the exact same assumption from the same set of data).

This is the essence of what those in attendance should take away from Thursday night's city council meeting that mostly centered on the issues of the city's floundering hotel.

Things learned.

Some key facts came to light that many did not know and others may have known but forgotten over the intervening years since the hotel project was first proposed. Some of the information was revealed via simple research into public documents. Some of it was explained by the city's extremely capable bond attorney, Ed McManimon.

  • The Lafayette Yard Community Development Corporation was incorporated in June of 1998 by Shelly Zeiger. The other "trustees" besides the incorporator were Acquest Realty's David Ong, along with Bill Watson, Allan Mallach, and Gwendolyn Long. These five were, according to the incorporation document, "designated by the Mayor of the City" and two others were to be "designated by the City Council at a later date." Mr. Zeiger was the registered agent for the corporation.
  • The purpose of the LYCDC was to assist the city, parking authority and state in redeveloping the parcel of land into a hotel, conference center and parking garage.
  • The LYCDC, when adopting its bylaws, made the Mayor the appointing authority, with advice and consent of the City Council.
  • The LYCDC, NOT the City of Trenton, owns the hotel.
  • The LYCDC, NOT the City of Trenton, issued the tax-exempt bonds to raise some of the money for the project.
  • The City of Trenton is the guarantor of the bonds. That is, if there is not enough revenue generated by the hotel operations to cover the payments of principle and interest on the bonds, the City of Trenton must make the payments. Since the hotel has, generally, not made a profit that means the city has made the payments and likely will continue to do so.
  • There are other, subordinate loans from the state and the Trenton Parking Authority that helped finance the project.
  • While the City of Trenton is responsible for the debt incurred to finance the development, it is NOT obligated to cover any operating shortfalls.
  • In order for the hotel to be sold, the title has to first transfer to the City of Trenton from the LYCDC.

What this means, in short, is that the LYCDC holds title to the property and operates it via a contract with a management company. The LYCDC is technically the borrower of the money used to construct the facility. The city is the backup...if there are not profits from hotel operations to pay the lenders back, the city must (and has been) make the payments. The city is not obligated to honor the cash calls made by the LYCDC to cover operating deficits.

Take a minute and let that sink in.

Ok, so what do we do?

There is universal agreement that the hotel needs to be sold. There is not so much agreement on the where, when, how and to whom,

It is also pretty much agreed that the hotel is more attractive to a buyer as an open and operating concern rather than closed.

To continue operations after the current agreements with Waterford (the management company actually "running" the hotel) and Marriott (the brand or "flag"), a new computer management system must be purchased and up and running. (This is because the current system in use is Marriott's proprietary system and when they go, it goes. It is that simple.)

There will also be expenses incurred removing all "Marriott" branded items from the property.

This is the $200,000 in transition expenses approved at last night's council meeting. This will allow Marshall, the incoming management company, to operate the hotel after midnight, June 14 when the property becomes "the-hotel-formerly-known-as-the-Trenton-Marriott".

What is not settled is whether to proceed with the re-flagging of the hotel as a Wyndham or operate it independently. Here there are differences of opinion.

Many in the business community, along with the LYCDC board majority, place importance on having a branded hotel. Their arguments range from the improved market recognition a flag carries to implied "standards" of service and facilities. Some say the public seek out name brand hotels when traveling because they are known entities.

Of course, running with a flag can mean additional costs. There is reportedly a $10,000 application fee just to be considered for the Wyndham name. Then there will be some kind of license fee, franchise fee, etc. to actually put the name on the property, tie into its reservation system and utilize the chain's marketing muscle. In addition, we cannot overlook the $3 million in property improvements that Wyndham wants done. These have thus far been described in reports as essentially cosmetic makeovers of the bar area and freshening up the decor in the guest rooms.

In the other camp are those who feel the hotel could operate just fine without a brand for the very brief (but as yet undefined) period between losing the Marriott name and being sold. The thought is that if you are coming to Trenton and inclined to stay at a hotel here in town, you will really have no choice. A brand name is not going to make a difference. Surely, Marshall can operate a property to "chain" standards without the benefit or expense of the brand name. The money saved on application and franchise fees can be freed up for marketing and for those property improvements and maintenance that are actually necessary.

Would operating independently eliminate the need of further bonding?

Operating independently might eliminate the need to issue more bonds to cover this expensive bar makeover and such. However, there are undoubtedly some repair and maintenance issues that should be addressed as part of "polishing this gem" (as one speaker referred to it last night) and readying it for sale.

There is another option that bears consideration.

Bond counsel Ed McManimon noted that the city could issue taxable bonds in the amount equal to the LYCDC’s tax exempt bonds, essentially paying off the LYCDC’s bond debt and acquiring the hotel. At current rates, the city’s debt would be about the same as it is currently paying as guarantor of the LYCDC bonds.

A new body could be created, with members from the state, perhaps the county, the business community and such to oversee the operation AND sale of the hotel.

Robert Lowe sketched it out this way in a post on Facebook last night:
The Trenton Hotel 7 Step
  1. The City issues taxable bonds equal to the hotel equity it has guaranteed, approximately $13.5 mil, and retires the LYCDC bonds it has guaranteed in equal amount. With this action, the City officially owns the hotel, disbands the LYCDC and nullifies the Asset Manager contract.
  2. The City works with the Management firm to operate as an unbranded hotel.
  3. The City plans what is truly needed in a reservation system, and works with outlets such as Expedia, Flipkey, and the like to ensure continued internet marketing.
  4. The City begins negotiations with the unsecured creditors to arrange for forgiveness of such debt.
  5. The City studies the advisability of sale timing, and the possible returns potentially realized by initiating renovations - a true professional business assessment with realistic projections for each available scenario.
  6. The City prepares an RFP for sale, and determines the timing of sale, based upon a thorough assessment of the business analysis described above.
  7. The City sells the hotel, and encourages all stakeholders to step up to bat, requesting a demonstration of their support by steering business to the hotel. This includes the State, who by purchasing procedures and policy can drive volume.

We think Mr. Lowe is onto something.

We know we will likely never get back the money already invested in this project. We need to focus on getting the hotel into private hands.

As Mr. Lowe said, details need to be worked out. Still, this is more of a plan than we have seen or heard to date.  
It is worth a shot.

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