The Trump Organization has announced its second hotel
deflagging within the past five months, and it appears to be on the verge of a
third, signaling that President Trump and the controversies surrounding his
politics could be hurting his family's luxury hotel business.
The Trump Organization and CIM Group, the majority owner of
New York's Trump SoHo, reached an agreement to remove both the Trump brand and
management from the 391-room hotel by year's end. The hotel, which was
announced in 2006 on "The Apprentice," opened in 2010.
In late June, JCF Capital, then owner of the 261-room Trump
International Hotel & Tower Toronto, agreed to buy out the Trump
Organization's management contract just as the 5-year-old property was being
sold to InnVest Hotels LP. The property has since been rebranded under Marriott
International's St. Regis badge.
And as of last week, the Associated Press reported that the
owners of the 369-room Trump International Hotel & Tower Panama were trying
to remove both Trump's name and management. The 70-story, sail-shaped tower
opened in 2011, but since then, owners, who collectively paid at least $32
million for the Trump association, have had trouble selling its condominium
Neither CIM, JCF Capital nor the Trump Organization cited
lagging demand for the deflaggings, while Miami-based Ithaca Capital Partners,
which acquired a majority stake in the Panama hotel, did not respond to a
request for comment last week. JCF Capital called the Trump group "exceptional
partners," while CIM cited "a strong working relationship" with
"Not only do we have a valid, binding and enforceable
long-term management agreement, but any suggestion that the hotel is not performing
up to expectations is belied by the actual facts," the Trump Organization
said of the Panama hotel in a statement last week. "Despite the fact that
Panama City has experienced a 21% increase in hotel rooms since 2014, over the
last three years, the hotel has outperformed the market by a wide margin -- as
much as 20% -- by virtually every measure."
Still, the three properties account for more than 25% of the
Trump Organization's global total, and the willingness of hotel owners to pay
the company millions of dollars to terminate its contracts before they expire
suggests that the president's polarizing effect on prospective travelers is
JCF Capital agreed to pay the Trump Organization at least $6
million to walk away from the project, Bloomberg News reported, citing a person
familiar with the process, while the New York Times reported that the company
had years remaining on its Trump SoHo contract when it was terminated.
With annual management and branding fees approximating 5% of
revenue, a breakup fee could be two to four times that amount, according to Jan
deRoos, HVS professor of hotel finance and real estate at the Cornell School of
Hotel Administration. That means that for a property like Trump SoHo, early
termination could net the Trump Organization from $4 million to $8 million. The
Trump family's privately held hotel company does not disclose financial
"His presidency is probably hurting his hotel business,"
deRoos said. "Even if you like the guy and stay at his hotel, the
conversation is going to be about Trump and not about the business at hand. So
we're starting to see evidence that people are voting with their feet."
The deflaggings also mark a reversal from a year ago. At the
time Trump was elected president, the Trump International Hotel Washington D.C.
had just opened at the Old Post Office property, giving the Trump Organization
an opportunity to benefit from increased business from foreign dignitaries and
Republican Party power brokers, both in Washington and at Trump's Mar-a-Lago
Resort in Florida.
The company was also putting the finishing touches on Trump
International Hotel & Tower Vancouver, which opened in February. It was an
era of optimism for the company, which had recently announced an upper-upscale
lifestyle brand called Scion. This June, it added a midscale brand called
The optimism appears to have been warranted in the case of
the Washington property, which had $1.97 million in net income through April
on $18.1 million in revenue. Those figures, about 50% over budget projections,
were reported by the Washington Post in August, citing General Services
Administration (GSA) documents that were later removed from public viewing. The
Trump Organization operates the hotel on a long-term lease with the GSA.
The Vancouver opening, however, was marred by protests, and
in August, Foursquare, an app that lets users check in to various locations,
said foot traffic to Trump's U.S. hotels fell 16% year over year March through
July, while the search engine Hipmunk said first-half bookings at Trump's
hotels in North America were down 58% from a year earlier.
Trump Organization representatives disputed the Foursquare
and Hipmunk reports, though they did not provide financial metrics.
As for Trump SoHo, the hotel last week was quoting
mid-December weekend rates starting at $404 a night, which is comparable to the
James New York SoHo ($370) but substantially less than starting rates at nearby
competitors such as the Mercer ($625) or the Four Seasons New York Downtown
As for the company's future, deRoos said it might find
opportunities for American Idea because of minimal competition within the
sector in Southern, Trump-supporting states. But he said the limited
development of the Scion brand -- there's only one property under construction,
in Mississippi -- suggests that prospective developers have lots of other
lifestyle brands to choose from without political headaches.
As for the flagship brand, its small and shrinking footprint
will likely prevent it from operating at the economies of scale necessary to
compete with larger luxury brands, limiting growth opportunities to either one-off
locations or to the golf resort sector.