Corrections or additions?

This article by Barbara Fox was prepared for the April 10, 2002

edition of

U.S. 1 Newspaper. All rights reserved.

Persistence Pays in Trenton’s Hotel Quest

Early in 1998 the long-desired Trenton hotel project

looked like it would fall through. The comeback story was fraught

with drama, says Robert Powell of Nassau Capital Advisors on

Vandeventer

Street. "I have been involved in public private financing for

25 years," says Powell, "and I have never had an experience

with so many twists and turns, so many dark moments, so many near

misses — and a successful conclusion. At least one more hotel

will come into the city in 10 years because of the success of this

one."

In addition to Mayor Doug Palmer, the hotel’s advocates included

importer

Shelley Zeiger, a perpetual Trenton booster with a poignant childhood

story of escaping from the Nazis by hiding in a root cellar. A

colorful

character, Zeiger made Trenton cultural history in the early 1980s

by enticing the Kirov Ballet to the War Memorial for the first public

performance in the United States since the Cold War began. He had

also attempted to revive a hotel on State Street and failed. "But

I knew there was a great hunger for a flagship hotel in the state

capital," says Zeiger.

It was Zeiger who piqued the interest of no less a personage than

J. Willard Marriott. Zeiger had met the Marriott CEO when they were

board members of the American Russian Cultural Foundation and the

U.S. Russia Business Council. At Zeiger’s prodding, Marriott flew

into Trenton in his private plane to work on the deal in 1991.

"It pays to be persistent," says Zeiger. "It was the last

thing on his mind to have a hotel in Trenton. One day we were at the

embassy and I said, `When are you going to come?’ I picked him up

at the Trenton airport and took him to Drumthwacket for a meeting

with Jim Florio and Doug Palmer. We had a very wonderful meeting.

I drove him to Trenton to make sure we were picking the right

site."

Florio’s administration planned to announce the hotel

at the beginning of his second term, but when Christie Whitman was

elected, the hotel plans went back to the drawing board. Marriott

recommended a developer, Michigan-based Acquest Realty Advisors,

experienced

in public/private partnerships, and everyone began to look at a

nonprofit

solution.

Powell, the former president of DKM, known for inner city development

in Trenton and New Brunswick, consulted to the Trenton Parking

Authority.

The Authority turned out to be the lead investor in the Lafayette

Yard Community Development Corporation, the not-for-profit that

developed

and owns the hotel (U.S. 1, October 21, 1998).

Powell enlisted Ryan Beck & Co., a Livingston-based investment banking

firm to sell the tax exempt municipal bonds privately. "But by

the end of 1999, partly due to the Y2K frenzy, that market

deteriorated,"

says Powell, "and we needed to back the bonds with additional

credit. Early in 2000 we changed our strategy dramatically and asked

the City of Trenton to guarantee the prompt payment of Lafayette Yard

bonds." That brought the price of the bonds down from over eight

percent to just five percent, which lowered the debt service by

one-third,

creating a lower break-even rate for the hotel. "We also purchased

private bond insurance and ended up with a AAA bond rating," says

Powell, "and we were able to sell a $52 million bond issue at

auction, through First Union and Commerce Bank in April, 2000."

The irony in this arrangement is that if Trenton had already had

successful

hotels, this tax-free bond arrangement would have been impossible.

"In order to set up a nonprofit corporation, the one thing you

must have is city approval," says Powell. "In a thriving hotel

market, such as Atlanta or New York, the hotel industry would scream

bloody murder if a not-for-profit corporation tried to do this."

"This nonprofit corporation is owned by the city of Trenton. There

are no private shareholders, and there will be no dividends to private

investors," says Powell. So unusual is this arrangement that the

standard incentive plan for hotel management had to be deleted from

the contract so that Marriott would not seem to be taking profits

out of a nonprofit corporation. Instead, Marriott agreed to

subordinate

its management fee to the debt service. This means that if the hotel

is not making money, the bondholders will take their share of the

income before Marriott does.

At each of the key steps, Marriott’s leadership was vital to the

project,

says Powell. "They made significant concessions. They stood by

the project after it experienced lots of delays. At critical points,

J.W. Marriott helped us make the case for state assistance."

Perhaps the most dramatic moment was when the hotel mogul lobbied

the state legislature. "We needed to get $5 million from the

state,"

says Powell. "The Whitman administration didn’t have the money

and we had to go to the legislature for a line-item appropriation.

In the middle of that, Shelley bought J.W. Marriott back to Trenton

for a day, and we took him through the legislature to brief key

leaders.

They were beyond impressed. He has a star quality about him, and his

impact on the leadership was dazzling. He was articulate, persuasive,

and made a case for the hotel in this town that was more persuasive

than any of us had been able to do."

Word of the Marriott visit got around in the State House, and as his

entourage went through the halls, people would come up with cameras

and ask to have their pictures taken with him.

"When he is talking to you, you have the feeling that the two

of you are the only two people are on the planet at that moment,"

says Powell. "When he talked about how important the

revitalization

of Trenton is to him and Marriott, you believed it. He was a celebrity

that day."

— Barbara Fox


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