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2017-06-05 20:02:02
Trump Organization to Go Budget Friendly With ‘American Idea’ Hotel Chain

On the campaign trail, President Trump’s children rolled through dozens of small towns across the country, reveling in the adoration of the crowds. But they were less enamored of the budget-friendly hotels along the way, an assortment of run-of-the-mill offerings that were barely distinguishable from one another.

That led to a business idea.

On Monday, the Trump Organization announced plans for a new three-star hotel chain with a patriotic flair, echoing President Trump’s campaign slogan about putting America first and reflecting the organization’s promise to enter into new deals only in the United States. The intention is to differentiate the chain, called American Idea, by featuring artifacts of American culture in the hotels, such as an old Coca-Cola machine in the lobby or American-made sundries in the rooms.

And while the Trump Organization and its business partner say the down-market move is not about politics, the president’s business is inherently viewed through that lens: The chain will make its debut in little-known towns in Mississippi, a state in the heart of Trump country that favored him over Hillary Clinton by a margin of 18 percentage points. The organization’s business partner in Mississippi is a family-owned hotel company whose co-owner met Mr. Trump at a campaign event last summer and donated to his campaign.

This new chain is an unlikely venture for a company commonly associated with luxury accommodations in upscale locations, and it indicates that the Trumps see dollar signs in the vast support the campaign received from conservative areas well beyond major cities. The first hotels are expected to come online quickly because they will involve rebranding existing properties like Holiday Inns and Comfort Inns.

Eric Danziger, the chief executive of the Trump Organization’s hotels division, said in an interview that the company had planned a hotel expansion for nearly two years, apart from the Trump campaign. During the campaign, the Trump children would report back about the thousands of supporters attending rallies and what they saw as a chance to build a line of hotels standing out from the cookie-cutter options in midsize and small cities.

“I said, ‘That’s brilliant,’” Mr. Danziger recalled. “The reality is we should have something in those kinds of locations.”

Mr. Danziger, a longtime hotel executive who previously led Wyndham Hotels, said the first American Idea hotels would open in the Mississippi Delta, but he rejected the idea that the electoral map of 2016 would become a blueprint for picking future locations. Mr. Trump sometimes hands out a version of the map to White House visitors, showing blue dots in and around major cities (indicating support for Mrs. Clinton) and wide stretches of red (signaling votes for Mr. Trump) nearly everywhere else.

“There is no political thought to it,” Mr. Danziger said regarding the new chain, and he added that there could be “many hundreds” of American Idea hotels in both red and blue counties and states. The counties in Mississippi that will get the first hotels tilted toward Mrs. Clinton, for instance.

Even before Mr. Trump took office in January, ethics experts and political opponents criticized his refusal to divest from the far-flung business. Mr. Trump handed over control of the Trump Organization to his eldest sons, Eric and Donald Jr., and other executives, and he agreed to forgo new deals abroad. But he remains financially invested in the family business.

The new hotels will have no overt connection to Mr. Trump — his name will not appear anywhere, Mr. Danziger said.

The American Idea chain is the latest expansion of the Trump hotel empire, coming just months after Mr. Danziger unveiled plans for a four-star brand known as Scion. The Trumps will not own the new hotels under either brand but instead license them to business partners (who must pay royalties and other fees). The Trumps plan to manage the day-to-day operations of the Scion hotels but leave that task to their partners at the American Idea properties.

Trump executives had hinted that a three-star hotel chain was in the works in recent interviews, and in April 2016 they filed for a trademark on the American Idea name.

At Trump Tower on Monday evening, Mr. Danziger and Mr. Trump’s eldest sons announced that their partner in Mississippi would be an Indian-American family that through its company, Chawla Hotels, owns 17 hotels in the region. Those hotels are currently branded by well-known chains; the plan is to convert at least three of them to the American Idea line, Mr. Danziger said.

American Idea will compete with nearly 20,000 other hotels in the so-called midscale and upper-midscale business, according to STR, a hotel data and analytics specialist. In Mississippi, there are about 250 such properties, and that, according to hotel experts, leaves room for new players.

“There’s always room for new brands,” Jan A. deRoos, a professor of hotel finance and real estate at Cornell University, said, noting that Hilton had recently opened a more-affordable brand called Tru.

As for the Trumps joining the three-star market, Professor deRoos said: “This completely opens up the world to them. The brand evolution is great. But as a president, he needs to separate himself from this.”

Chawla Hotels will also be a partner in a Scion property being built in Cleveland, Miss., making it the first Scion location to be publicly announced. The boutique development is expected to include a restaurant and meeting space near a music museum. Mr. Danziger said he expected to announce four additional Scion hotels in the next couple of months, including one in Dallas.

Such a deal in Dallas would come after the Trump Organization cut ties with another potential Dallas business partner, who had attracted scrutiny for connections to Russia, Kazakhstan and at least two dozen other countries. The Trump Organization’s outside ethics adviser, Bobby Burchfield, had raised questions about the potential sources of financing, according to a person briefed on the process who spoke on the condition of anonymity to discuss private deliberations.

Mr. Burchfield has granted approval for the Trumps to proceed with Chawla Hotels as a partner, Mr. Danziger said.

During the presidential campaign, the Chawlas became acquainted with the Trumps after Suresh Chawla, who runs the hotel business with his brother, wrote a letter that appeared in several local newspapers in the fall of 2015. It described how their father was inspired by Mr. Trump more than 25 years earlier when he sought advice about financing a hotel project. Suresh Chawla recalled how their father, a convenience store owner, had cold-called Mr. Trump’s office in New York to ask for a $425,000 loan.

Mr. Trump returned the call, the story goes. And while he did not offer a loan — Mr. Trump supposedly called the deal “small-fry” — he instructed the elder Mr. Chawla to explore less conventional sources of funding and said he admired his immigrant story.

Eventually, Mr. Trump met Suresh Chawla during a campaign visit last summer in Jackson, Miss. Mr. Chawla told The Mississippi Business Journal that Mr. Trump had encouraged him to “think grand” with one of his projects.

In his letter to the editor, Mr. Chawla wrote that he did not support Mr. Trump’s campaign, and he later revealed that early on he preferred Mrs. Clinton or Senator Marco Rubio, Republican of Florida. But he eventually donated a total of $50,000 to Mr. Trump’s campaign and party. (He had previously contributed to other causes, including Republicans, and he once hosted Barack Obama, then a senator, at one of his hotels, he said.)

After the vice-presidential debate in October, Mr. Chawla wrote another letter to the editor, to The Greenwood Commonwealth, criticizing the newspaper’s coverage, which he said tilted toward Democrats. He concluded his critique with a question: “How pathetic is media bias?”

Months later, the Trumps contacted Mr. Chawla about possibly becoming partners with him and his brother, Dinesh Chawla. When Mr. Danziger heard the family’s story, he called Mr. Chawla and briefed him on the new brand, he said.

“It would be the most amazing thing on the planet,” Mr. Danziger recalled telling him, “if you were the first one.”

In an interview, Suresh Chawla said the announcement was “extremely surreal; my father should be here.”