TRUMP’S WASHINGTON DC HOTEL MAY BECOME A WALDORF ASTORIA HOTEL

 

…The Old DC Post Office is a fine granite example of an over 100 year old building

 

Will Trump profit $100 Million from the sale of his DC hotel?

 

Even though anyone that follows Donald Trump knows that he isn’t, as he claims, a real “billionaire”.  In fact, a number of books have been written about Trump showing the millions (possibly billions) of dollars that he has lost over the past 50 years

Well, many thought that when Trump offered to spend $200 million overhauling one of Washington DC’s most treasured historic buildings, (the former main Post Office building), into a luxury hotel a decade ago, competitors and critics scoffed at his offer.  Trump, they asserted, could never operate a hotel profitably after paying so much.

As it turns out…they were right!

The hotel has posted millions in losses over the last four years.  This is according to the financial documents Trump’s company provided to the government and was 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 Washington’s Old Post Office Pavilion to Miami-based investment firm CGI Merchant.  CGI hopes to turn the property into a Waldorf Astoria in partnership with Hilton Worldwide.  Of course, this is according to three people familiar with the arrangement. who obviously spoke on the condition of anonymity to share details of the transaction. One of these people said the price was $375 million, which would eclipse the previous record for any hotel sales in Washington.

If this story is true, the experts say that this time the price would net Trump a hefty profit of $100 million or more.  This is based on the financial documents and the company’s lease with the government. That would provide Trump with a rate of return that many hedge fund managers would envy.  This is all thanks to a market that is snapping up hotels in the expectation the pandemic will wane and travel will roar back.

“Today, U.S. hotels are hot. Even in cities that aren’t doing so well, people are paying robust prices to buy hotels,” said Suzanne Mellen of the financial firm HVS. “We are seeing extraordinary pricing.”

“I assume every global luxury chain has taken an interest in this property,” said Michael Bellisario of the Baird financial company.

As expected, the spokespeople for the Trump Organization, CGI Merchant and Hilton declined to comment.

There is no indication that politics played any role in the offer by CGI Merchant and its chief executive and founder, Raoul Thomas. Experts say that the price, while high, is plausible on business grounds, but some do wonder how CGI will be able turn a profit after paying such a high price.

Hotels today are priced on a per-room, or “per-key,” basis.  In Washington the high water mark came in 2016, when the Capella Hotel Georgetown, now the Rosewood hotel, sold for about $1.3 million per key. This is according to industry data.

At $375 million for 263 guest rooms, the proposed Trump sale would come to about $1.43 million per key, 10 percent higher 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, which is a backdrop for the presidential inaugural parade every four years, probably drove up the price.

“How often do you have a hotel built the way that hotel was built?” said Dan Hawkins of Berkadia Real Estate Advisors. “It's pure granite. Ideally positioned between the White House and the Capitol.”

 

If the deal closes, Trump will have fared far better than expected when he won the deal from the General Services Administration almost a decade ago, when the government sought private companies to redevelop the building from a government office building, food court and a failed shopping mall.

In selecting President Trump for the project, the government overlooked his past bankruptcies, his business litigation and his false claims about President Barack Obama’s birthplace.  Trump's company had agreed to spend $200 million to rehabilitate the building, and Trump did ultimately spent $217 million on the project.  That was $194 million redeveloping the building and $23 million on furniture, supplies and build-out for the retail space.  This is according to the financial statements. His company provided the hotel with millions more to keep the property afloat while it was losing lots of money.

Should he actually complete the sale, which could go away, he still will have a large debt.  Trump would then have to repay the Deutsche Bank the $170 million he borrowed to build the project.  This is on top of the $3 million he has been paying the GSA annually in base rent.  The current lease stipulates that Trump pay a small share of the purchase price to GSA, probably less than $10 million. The provision says that if the Trump Organization achieves an annual return of 20% with a sale, the GSA gets 15% of any remaining proceeds beyond that level.

That would leave more than $100 million in potential profits for Trump when he finally signs away the property.  The property came to symbolize his willingness to mix politics with business in ways no other U.S. president has done.  This has led to numerous legal and ethical brawls with the Democrats and the government watchdogs.

The hotel opened along with Trump’s election win in 2016 and started off with a bang, when it was able to charge sky-high rates for its rooms during Trump’s inauguration. Early on, the hotel booked a number of embassy events, landing Trump tens of millions in foreign payments, and it hosted foreign leaders when they traveled to Washington to meet with him. Members of his Cabinet, and later his attorney Rudolph Giuliani, stayed there routinely.

Despite the decision by Trump’s company to donate profits from foreign governments to the U.S. treasury and not to market to embassies, one controversy after another dogged the property. The D.C. attorney general sued over the Trump inaugural committee’s use of the hotel, in a case that is still ongoing.

Lawsuits over whether Trump could accept payments from foreign governments have dragged on for years. Giuliani’s efforts to pressure Ukraine for political favors, conducted largely from the same Trump hotel, led to Trump’s 2^nd impeachment..

Trump and his family criticized the impeachment and any subsequent disputes as politically motivated attacks on Trump and his presidency.  All this while critics said he should have sold his business before he entered the White House.  This is one of the disputes that the family says is just Democratic “sour grapes”.

“Donald Trump should never have been allowed to keep his D.C. hotel as president,” said Noah Bookbinder, president of the watch-dog group Citizens for Responsibility and Ethics in Washington. “He should have divested himself of it along with the rest of his businesses before taking office.”

The hotel was never able to consistently profit, requiring repeated payments from Trump’s main company to stay afloat. The average daily rate it charged for rooms fell to $478 in its second year of operations.  That's below the $535 they started at, and the hotel was still on average only a little over half-full.  This is according to the experts’ analysis of the hotel’s financial documents.

Trump was however, able to extract some other financial benefits. In preserving the historic building, the Trump Organization was granted a federal tax credit by the National Park Service, one that experts say could be worth as much as $32 million. Whether he has taken advantage of the credit has not been made public.  That's because the IRS does not disclose information about individual taxpayers, and of course, Trump has yet to release his tax returns.

Trump was also able to arrange deals in which the hotel paid other companies he owns to market and book rooms.  Those fees totaled $4.3 million from its opening in mid-2016 to mid-2020.  This is according to documents released by the House.

The bet by CGI Merchant and Hilton is that once the name “Trump” comes off the building, the Waldorf brand will attract more customers at much higher room rates. Hilton has Waldorf locations in some of the world’s most prestigious locations, but does not have one in Washington.  This is despite Hilton’s headquarters being in McLean, Va., and chief executive Christopher Nassetta having grown up in Arlington, Va.

“If there wasn’t the politics issue, that property would have operated very well and profitable,” said Marc Magazine of the real estate firm Savills. “Is it a sure bet? I wouldn’t say that. It’s a lot of money. But I do think in a few years, when you are out of the pandemic, there is going to be room to push up rates on all five-star hotels.”

Even though Trump will possibly make a $100 million profit, the possibility of the Waldorf Astoria making an even larger profit after the hotel has been open for another 4 years. 

So, once again, there’s a good chance that in the long-term, Trump will lose lots money as he did with the bankruptcy of his failed casinos in Atlantic City and his other money losing golf courses.

With Donald Trump, some things just never change.

Copyright G. Ater 2021