The Trenton Times published the following article on March 5, 2013. To read the full article click here.

Trenton Marriott demands $295K from city council or hotel goes dark

By Erin Duffy/The Times of Trenton 
on March 05, 2013 at 10:01 PM, updated March 06, 2013 at 7:32 AM

TRENTON — Even as the new management firm for the city-owned hotel unveiled its five-year projections and strategies for improving occupancy rates and profits, council was reminded that the Trenton Marriott’s current financial problems still loom large.

Rocky Peterson, the attorney for the Lafayette Yard Community Development Corp., the public board that oversees the hotel, continued to press the case for the $295,000 “cash call” made two weeks ago, telling council the hotel could go dark and close down immediately if council fails to approve the payout by March 15.

The hotel’s management company is entitled to demand money from the city whenever its cash reserves fall below a certain level.

“We’re here to talk about the future but we have a short-term problem that has to be addressed,” Peterson said.

He presented council with a doomsday scenario he said would occur if council failed to approve the $295,000 payment to Waterford Hotel Group, the downtown hotel’s current management company. On Friday, Waterford sent Lafayette Yard a letter informing the board it would immediately terminate its contracts if the $295,000 was not approved next week. Waterford officials have said the amount is needed to keep cash flow steady at the hotel through June, when both Waterford and Marriott will end their tenure at the hotel.

Council made no decision on whether to pay but may vote on the matter at their meeting tomorrow. They gave no indication whether they intended to pay.

If Waterford ends its contract early, Marriott will immediately pull its franchise, Peterson said, effectively shutting down the city’s only downtown hotel.

“There’s a lot of consequences for that and the consequences are really very dire,” Peterson said. “The hotel closes, Marriott immediately pulls its flag. If the management company leaves, they’ll pull the flag immediately. That also means all employees of the hotel will be terminated. Our obligations will still continue and liability with regards to Waterford, but the most important issue is the hotel goes dark immediately.”

The Marriott is slated to be rebranded as a Wyndham hotel in June and Marshall Hotels & Resorts will take over for Waterford, pending contracts that have yet to be signed, but it’s unlikely either group would be able to immediately step in if Waterford were to pull out, Peterson said.

Waterford and Lafayette Yard asked council for the cash two weeks ago, saying the money was necessary to pay off bills and keep cash flow at a certain level. Whenever the hotel’s projected cash flow threatens to fall below $200,000, Waterford retains the right to request extra funding from the city.

Documents from Waterford show the hotel’s unpaid expenses tallied $676,000 at the end of January. Much of the $295,000 cash call will go to pay down large and often overdue bills for the Trenton Parking Authority, Acquest Realty Advisors, the hotel’s asset manager, and Veolia Energy. The hotel owes the city parking authority $170,518 in parking revenue from the 657-space parking garage attached to the hotel, $116,575 of which Lafayette Yard and Waterford expect to pay off with the cash call funds.

Council members have been less-than-enthused about handing over the money, though, pointing out that the little extra money the city has should not be used to keep an underperforming hotel afloat. Council approved a similar $500,000 cash call last year that was also used to pay vendors and outstanding bills, though $115,000 from that request was never released by council, but has heard little since from Lafayette Yard on how the money was spent or how the hotel is faring.

“The management needs to change and the board needs to change,” Councilman Zachary Chester said. “The current board needs to be dissolved and a new board needs to be appointed.”

Council also heard detailed presentations on the hotel’s past and current finances from Waterford and Acquest. Acquest president David Ong confirmed the hotel carries long-term debt of about $40 million, which includes debt service of $1.4 million annually that the city pays.

“It’s a choking number,” Ong said. “If that debt was owed to third parties we’d be hopelessly insolvent.”

The hotel, built for $60 million 10 years ago, is probably worth about $9.5 to $10 million today, though if it sold tomorrow, it would likely fetch much less in a distressed property sale, Ong said.

Executives from Marshall Hotels & Resort tried to paint a slightly rosier picture of the hotel’s future, saying they couldn’t promise a complete turn-around of the hotel’s finances, but rather a slow and steady climb toward solvency, modest profits and occupancy rates higher than the hotel’s current 50 percent.

“This hotel used to do $10 million a year in revenue,” Marshall president and CEO Michael Marshall said. “Do I think we can get back there? Yes. Do my numbers show that? Absolutely not. The operating margins will be a lot different.”

Marshall said his company specialized in taking over under-performing hotels and improving profits and foot traffic, pointing to success stories at Marshall-managed hotels in Cleveland, Morristown and Winchester, Virginia that were in straits similar to the Trenton Marriott’s. He and vice president of sales Kelli Rupe said Marshall would focus on wooing the hotel’s core customers — government and corporate business — and re-establishing the hotel as a local community partner.

“One of the things I’ve heard about your hotel is the city loves the hotel but the Marriott doesn’t love the city,” Marshall said.

Marshall also confirmed the hotel will need a $2.5 to $3 million renovation, a facelift to replace frayed, duct-taped carpets, older wallpaper and other signs of an aging property.

“The place is tired, there’s no doubt about it,” he said. “We want to borrow that money to do that renovation and give the city a product you can be proud of again.”

Marshall is trying to find a lender to finance the renovation, but the city may have to eventually cough up more money to cover it, he said. 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.

Council members praised the group for its presentation and asked questions about specific marketing plans to bring travelers, lobbyists and other hotel guests to Trenton and ways to market the hotel while battling Trenton’s perception as a crime-ridden capital.