Where does a Donald Trump hotel fit into Washington’s luxury market?


Donald Trump is seen in his office in Trump Tower in Manhattan. (Jennifer S. Altman/FOR THE WASHINGTON POST)

Donald J. Trump and his daughter, Ivanka, are expected to finalize a lease for the Old Post Office Pavilion with the General Services Administration in the coming months, but that may be the simplest step in developing a glitzy hotel.

They then have to carry out their plan to make the property what they want it to be: the envy of Washington, a deluxe rest stop worthy of top room rates.

Working with Washington architect Arthur Cotton Moore, the Trumps plan a 261-room hotel with a spa, three restaurants, a lounge and a museum dedicated to the history of the building and the Bells of Congress that hang in its clock tower. Along with private equity giant Colony Capital, the Trumps have committed to spending $200 million renovating the building and paying the government a rent of $3 million a year.

Ivanka Trump said that like the Trump Organization’s eight other hotels, the Trump International Hotel Washington D.C. will attempt to fit the composition and style of the city where it is located. It could open in early 2016.

“You look at Trump Chicago — it’s contemporary, it’s elegant, it’s sleek, it’s got soaring height, 92 stories, which fits perfectly with the Chicago skyline,” she said of Trump International Hotel and Tower, the condo-hotel completed in 2009. The 64-story Trump hotel in Las Vegas, she said, is “over the top, extravagant.”

The hotel will emphasize the building’s place in Washington’s history, she said. Stately, classic and — unlike anything bearing the Trump name in Las Vegas or Atlantic City — traditional. “We have been so sensitive to the fact that this building is tremendously important, and we are taking great pains to preserve all historic elements,” she said.

Ivanka and her father insist that that the hotel will top other famed hotels, including the Hay-Adams, the Jefferson and the Four Seasons. “Everybody in Washington will be proud of the end result,” Donald Trump said.

It’s a bold statement given the reality of the luxury hotel market in Washington and the building’s location on a gray strip of Pennsylvania Avenue that has resisted redevelopment over the past 30 years.

The financial crisis was unkind to developers performing expensive rehabs of luxury hotels in Washington, forcing owners of some of the city’s most famous destinations to struggle with their debt obligations.

Owners of three marquee names — the Renaissance Mayflower Hotel, the Watergate and the St. Regis Washington — found themselves underwater on mortgages, with the last two changing hands after their owners defaulted on payments. Even a loan backing the Ritz-Carlton hotels in the West End and Georgetown landed on a watch list.

After the recession ended, however, business has been on the comeback. Luxury hotel room occupancy in Washington was 76.2 percent through June of this year, according to data from Smith Travel Research, up from 72.5 percent in the first half of 2008. Revenue per available room (a key performance metric used by the industy) has had a rockier ride, but was at $208.42 for the first half of 2012, up from $205.08 for the same period in 2011 and $190.54 for 2010.

“Many of the [luxury operators] I’ve talked to have had a better-than-expected 2012,” said Elliott L. Ferguson, chief executive of Destination D.C., the city’s tourism agency.

Jan Freitag, a senior vice president at Smith Travel Research, said the market was bouncing back nationally, as well. “We are in a recovery in the U.S. hotel industry, so room rates are going up, and they are going up quite a bit on the luxury end,” he said. “But guests are expecting a lot more from the service and amenities point of view.”

A rule of thumb for redeveloping a hotel is that every $1,000 one spends improving each room ought to bring back $1 in rent a night on that room. The Trumps plan to spend $200 million on 261 rooms, which equates to more than $750,000 per room and indicates an average nightly rate of $750. That measure, however, can be crude because hotels have other ways to generate revenue.

A $750 average daily rate would easily be the highest in the city; it is more than $200 a night above what the Four Seasons, perhaps the top hotel in the city, managed last year when it collected $530.23 a day on average and had a 71.5 percent occupancy.

Ivanka Trump said room rates have yet to be set, but the Trumps plans to supplement revenue with spa services and income from banquet facilities. Their mix of rooms would include a higher percentage of suites and over-sized accomodations than competitors, something she said diplomatsprefer.

Wherever rates are set, they will assuredly be above the per diem rate that government employees may spend, meaning the hotel will likely be dependent on business executives and international travelers, the same market segment that frequents the company’s other locations.

David Loeb, who analyzes hotel companies as managing director at Robert W. Baird & Co., said $200 million was a lot to spend creating a luxury hotel surrounded by government offices, even one on a main thoroughfare connecting the Capitol to the White House: “The bottom line for Trump is it’s an ‘A’ location, but not an ‘A-plus’ location.”

“If a public company did it,” Loeb added, “I would probably be saying that it’s a tremendous risk.”

The Trumps call for reopening the Old Post Office’s front entrance facing Pennsylvania Avenue NW, where most of the doors are currently locked. An 11th Street NW entrance would be opened to cars and taxis, and Metro riders would arrive through an entrance on 12th Street NW.

Ivanka Trump has not shared many details about amenities, but for hints, consider what some of the Trump’s New York hotels offer.

At Trump SoHo, the 46-story tower in Lower Manhattan, the more than 11,000-square-foot Middle Eastern-themed spa features two Turkish baths with intricately adorned tile walls and seven treatment rooms. The suites upstairs, which rent for between $625 and $995 a night, include remote controls that operate not only the television, but the lights, drapes, heating and air conditioning. The seventh floor features an 8,000-square-foot rooftop pool deck and lounge.

At the Trump International Hotel and Tower, overlooking Columbus Circle and Central Park, the culinary headliner is chef Jean Georges, who operates an eponymous restaurant that is one of just six granted four stars by New York Times critics. The difficulty of securing a reservation has become a topic of pop culture fascination.

The Trumps will not be able to sell the suites as hotel-condos, or flip the property to another owner, as they have done with other developments.“We will not be selling any portion of the real estate,” they said.

But they do plan to offer hotel incentives connected to two other local properties, Trump National Golf Club, the golf resort in Sterling, and the 776-acre Kluge winery in Charlottesville.

To prevent the rooms from becoming too expensive, Ivanka Trump has focused on hitting a home run with the restaurant and event business. The proposed banquet space, at 35,000 square feet, would likely be the largest among luxury hotels in Washington. It will be built in what is now the crumbling and vacant rear annex, with valet parking below and an environmentally friendly green roof above.

“Meeting with all the different operators in the market, the number one thing they said they wished they had more of was meeting and banquet space,” she said. “So, of the luxury hotels, we’ll have the most square footage in terms of meeting and banquet.”

Marc A. Magazine, managing director of Savills Hospitality Group U.S., said the top meeting space in the city at the moment is on the eighth floor of the Hay Adams, which is newly renovated and overlooks the White House. He said that the Old Post Office may compete with it. “Right now, if you want to have the best event in Washington, D.C., it’s the roof at the Hay-Adams. When the Trump is built, people are going to have to say I’m having it at the Trump.”

Magazine said there were inherent risks in a project that will aim for a higher price point than currently exists in the market, but he said the building and the name give the project a chance.

“If you were going to test the highest end hotel in Washington, that’s the site to do it on. And if you were going to put in the hands of the biggest marketer in the United States, who else would you choose?”

Jonathan O'Connell has covered land use and development in the Washington area for more than five years.
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