Sources: The Trump Hotel Deal Has Been Done
When Donald Trump proposed spending $ 200 million to turn one of Washington’s most treasured historic buildings into a luxury hotel a decade ago, competitors and critics alike scoffed at it.
Trump, they argued, could never profitably operate a hotel after paying so much.
It turns out they were right. The hotel has recorded millions in losses over four years, according to financial documents the Trump company provided to the government and released by the House Oversight Committee in October.
But the former president’s company recently signed a contract to sell its lease of the historic Old Post Office Pavilion to Miami-based investment firm CGI Merchant, which hopes to turn the property into the Waldorf Astoria in partnership with Hilton Worldwide. , according to three familiar people. with the arrangement who spoke on condition of anonymity to share the details of the transaction. One of the people said the price was $ 375 million, which would eclipse the previous record for hotel sales in Washington.
Experts say the price would also make Trump a big profit, likely $ 100 million or more, based on the company’s financial documents and lease with the government. It would provide Trump with a rate of return many hedge fund managers would envy, thanks to a market that grabs hotels in hopes the pandemic abates and travel resumes.
“Hotels are hot. Even in cities that are not doing so well, people are paying high prices for hotels,” said Suzanne Mellen of financial firm HVS. “We are seeing extraordinary prices.”
“I guess every luxury chain in the world has taken an interest in this property,” said Michael Bellisario of financial firm Baird.
Spokesmen for the Trump Organization, CGI Merchant and Hilton declined to comment.
There is no indication that politics played a role in the bid from CGI Merchant and its CEO and founder, Raoul Thomas. Experts say the price, while high, is plausible for business reasons, but some have wondered how CGI could make a profit after paying such a high price.
Hotels are billed per room or per key. In Washington, the highlight came in 2016, when the Capella Hotel Georgetown – now the Rosewood Hotel – sold for around $ 1.3 million per key, according to industry data. At $ 375 million for 263 rooms, the proposed Trump sale would be around $ 1.43 million per key, which is 10% more than the Capella sale.
Hotel brokers said the historic nature of the 122-year-old building, the scarcity of five-star hotels in Washington, and the location on Pennsylvania Avenue – a backdrop for the inaugural Presidential Parade every four years – likely drove it up. the price. .
“How many times do you have a hotel built the same way this hotel was built?” Said Dan Hawkins of Berkadia Real Estate Advisors. “Pure granite. Ideally placed between the White House and the Capitol.”
If the deal goes through, Trump will have fared much better than expected when he won the General Services Administration deal nearly a decade ago, when the government asked private companies to redevelop. the building from a government office building, food court and a broken down mall. .
By selecting Trump for the project, the government has ignored past bankruptcies, trade disputes, and misrepresentation of President Barack Obama’s birthplace. His company agreed to spend $ 200 million to rehabilitate the building, and Trump ultimately spent $ 217 million on the project – $ 194 million for the redevelopment of the building and $ 23 million for furniture, supplies and equipment. development of the sales area, according to the financial statements. His company provided the hotel with additional millions to keep the property afloat as it lost money, according to claims.
If he closes the sale, Trump would have to repay Deutsche Bank the $ 170 million he borrowed to build the project. In addition to the $ 3 million he paid the GSA annually in base rent, the lease states that Trump pays a small share of the purchase price to the GSA, likely less than $ 10 million. The provision states that if the Trump Organization gets a 20% annual return on a sale, the GSA gets 15% of any product remaining above that level.
That leaves more than $ 100 million in potential profits to Trump when he cedes the property – one that has come to symbolize his willingness to mix politics with business in a way no other president has, leading to numerous legal and ethical brawls with Democrats and government watchdogs. .
The hotel opened almost in line with Trump’s 2016 election victory and got off to a flying start, when he was able to charge exorbitant rates for its rooms during Trump’s inauguration. Early on, the hotel booked a number of events at the Embassy, offloading Trump from tens of millions of foreign payments, and hosted foreign leaders when they traveled to Washington to meet with him. Members of his cabinet, and later his lawyer Rudolph W. Giuliani, stayed there regularly.
Despite the Trump firm’s decision to return foreign government profits to the US Treasury and not market them to embassies, one controversy after another has ravaged property. The DC Attorney General has sued the use of the hotel by Trump’s inaugural committee, in an ongoing case.
Lawsuits over whether Trump could accept payments from foreign governments dragged on for years. Giuliani’s efforts to pressure Ukraine for political favors, carried out largely from the hotel, led to Trump’s second impeachment.
Trump and his family have criticized the disputes as politically motivated attacks on him and his presidency, while critics have said he should have sold his business before entering the White House.
CGI Merchant and Hilton’s bet is that once the name “Trump” is removed from the building, the Waldorf brand will attract more customers at higher rates. Hilton has Waldorf branches in some of the most prestigious locations in the world, but does not have one in Washington, although Hilton is headquartered in McLean, Virginia, and general manager Christopher J. Nassetta grew up in Arlington. , Virginia.
“If it hadn’t been for the political issue, this property would have performed very well,” said Marc Magazine of real estate firm Savills. “Is that a safe bet? I wouldn’t say that. It’s a lot of money. But I think in a few years, when you’re out of the pandemic, there will be room to raise rates on five. – star hotels. “