How the Trumps landed the Old Post Office Pavilion
In a city of stately buildings, the Old Post Office is an especially fine piece of real estate. It’s 315 feet tall, just behind the Washington Monument (impressive, but not available). It’s historic, celebrated and on prestigious Pennsylvania Avenue.
The perfect building for Donald Trump.
Trump and his daughter Ivanka are close to adding the national landmark to the growing portfolio of shiny Trump things. The Old Post Office Pavilion is so revered that the threat of its demolition launched the capital’s historic preservation movement. Built in the 1890s, it has been ogled by local developers for years, and competition for the property began to boil almost immediately when the federal government sought private partners in March 2011.
When the government announced in February that it had selected the Trump plan to turn the building into a luxury hotel, it stunned Washington real estate insiders and politicos alike.
Critics have not held back. They say the Trumps are famous for making unrealistic promises and suing to get their way. They say the $200 million the Trumps have proposed to spend renovating the Old Post Office is not economically sensible, setting the project up for failure. The Trumps have built fewer hotels than their competitors and have never navigated Washington’s political and regulatory landscape. This, the critics say, should matter.
Trump, sitting in the 26th floor office of Trump Tower on Fifth Avenue, smiles from behind his desk at the criticism. It’s a grin familiar to millions of Americans who watch “The Apprentice,” which he tapes downstairs.
“In a way, we are paying too much for the Old Post Office,” he says casually. “I mean, we are paying too much for the Old Post Office. But we will make that so amazing that at some point in the future it’ll be very nice.”
Fifty years into his real estate career, confidence is a luxury that Trump says he can afford, although that was not always the case.
Trump was 37 and already famous when he completed 58-story Trump Tower, the Fifth Avenue building with pink marble interiors where he lives and works.
But his early triumphs prompted an ambitious entrance into Atlantic City in the 1980s that nearly cost him his fortune. Four times Trump-branded casino companies filed for bankruptcy to ward off creditors in the 1990s and early 2000s, although he has no role managing the companies today.
He staged his return, renegotiating loans and returning to bold skyscraper projects, such as the 72-story Trump World Tower in Manhattan, which a New York Times architecture critic dubbed a “handsome hunk of a glass tower,” and the Trump International Hotel and Tower in Chicago, an $850 million hotel and condominium project completed in 2009 that is the second-tallest building in the city. His expansion into golf courses includes the Trump National Golf Club in Sterling, where he plays a half dozen times a year and stays when he is in town.
With the help of “The Apprentice,” which debuted in 2004, and “Celebrity Apprentice,” Trump also took his name from one associated with resorts, casinos and a playboy lifestyle to a luxury brand, one that adds value to his properties the way LeBron James’s does sneakers and Paula Deen’s does skillets.
Terry J. Lundgren, chairman and chief executive of Macy’s, says Trump’s brand works. Macy’s sells Trump-branded neckties, shirts and cuff links, helped by the millions of viewers who see Trump wearing the solid color silk ties and French cuff shirts on prime time.
“I see his image being attached not just to real estate but just general business success,” Lundgren said.
That brand carries value in the hotel industry, according to David Loeb, managing director and senior real estate research analyst at Robert W. Baird & Co.
“Trump has cultivated an image that a lot of people do respond to,” he said. “And the Trump name is recognized, maybe not globally, but in international and domestic markets. And frankly the Trump hotels have achieved a reputation of being high-end luxury hotels in places like New York and Chicago.”
But having a highly rated television show and a line of successful neckties were not among the criteria the General Services Administration sought in a private developer for the Old Post Office, and the task of convincing the agency that the Trump Organization was the best choice to develop the building fell to Ivanka.
‘Potential to be the best’
A celebrity herself, who learned details of her parents’ divorce from New York tabloids and whose ballet recital as a child was attended by her neighbor Michael Jackson, Ivanka has graced the cover of fashion and lifestyle magazines from Seventeen to Harper’s Bazaar.
A Wharton graduate who strikes a serious tone discussing real estate, she played a role in developing Chicago’s Trump International Hotel and Tower and took the lead on a $150 million purchase of the Doral Golf Resort and Spa on 800 acres outside Miami.
As vice president of her father’s company, Ivanka considered Washington one of the most attractive markets in the world to build the family’s ninth luxury hotel worldwide.
“For us I would say if there was a top priority market,” she said, “I would put Washington at the top of the list globally.”
But the Trumps prefer to build the biggest building that zoning rules, physics and airplane flight patterns allow. In Washington, a federal law prevents most buildings from exceeding 130 feet, less then one-tenth the height of the family’s Chicago property.
When the competition began last April, Ivanka, with her brother Eric, joined dozens of developers, architects and investors in a walk-through of the building, past kitschy Americana shops full of postcards and T-shirts; through a vacant, unheated and crumbling rear annex; up into the clock tower with soaring views of the National Mall.
As she mingled with other bidders — operators of some of the world’s most luxurious hotels — Ivanka realized the Old Post Office, on Pennsylvania Avenue between the White House and the Capitol, was the building she wanted.
“I wouldn’t be interested in entering that market unless we could do so with a product that had the potential to be the best, and this is an opportunity we saw where we could accomplish that,” Ivanka said. “It’s not replicable — the beauty of this building, the location, the potential.”
Putting the bid together
Ivanka began assembling a bid last spring, traveling almost weekly on the Acela train to buttoned-down Washington to tour the building and competing luxury hotels with investors, engineers and architects.
Ivanka, who has her own brand of shoes, jewelry, handbags and coats (with perfume and sunglasses on the way), chose an architect, Arthur Cotton Moore, who was born and raised in Washington. He also began studying and working renovation plans for the building in the early 1970s. Rebecca Miller, executive director of the nonprofit D.C. Preservation League, says Cotton is “intimately familiar with the building.”
The Moore selection bolstered the organization’s experience restoring or managing historic buildings in New York. In developing the Grand Hyatt hotel, one of his earliest projects, Trump renovated the exterior of Grand Central Terminal. More recently he bought and renovated the Hotel Delmonico (built: 1929) and the Mayfair Hotel (1925) and converted both to luxury condominiums.
To put up the money for the Old Post Office project, the Trumps partnered with Colony Capital, a private-equity firm in California. Together they offered $200 million to renovate the building into a luxury hotel, spa and three restaurants and $3 million in annual base rent. (The Trumps declined to provide their full proposal, and the GSA declined to provide either the proposal or documents related to it in response to an open records request.)
Trump also would not say how much of the cash he will provide (“We’ll be putting in a lot of money”) but said he has avoided the debt problems that plagued him in past years. Indeed, he has been buying others’ properties out of bankruptcy and distress. The Trumps bought the Doral golf resort out of bankruptcy in June and the 776-acre Kluge Estate Winery and Vineyard, outside Charlottesville, for $6 million at a bank auction last year after it was foreclosed on with more than $20 million remaining on mortgages.
With commercial lending thin, the Trumps say they have put more than $120 million into their Chicago tower and $50 million into acquiring and beginning work on a 1,400-acre golf course and resort in Scotland.
Trump has rarely steered free from controversy, however. While his daughter was doing her best to win over GSA officials — whose leadership was appointed by President Obama — her father was suggesting the president was not born in the United States, that he wasn’t qualified to attend Ivy League schools and that he was, in fact, “the worst president ever.”
At the White House Correspondents’ Dinner, when Obama struck back in an extended and personal way, joking that Trump’s decision to fire actor Gary Busey from an episode of “Celebrity Apprentice” represented “the kinds of decisions that would keep me up at night,” Trump glowered back. Might he be ruining his company’s chances in Washington?
“I often wondered about that to be honest with you,” Trump said in his office, surrounded by magazine covers bearing his face. “Was I hurting, was I helping? Now, I couldn’t change. I can’t say, ‘Oh gee, I want to get the Old Post Office so I’ll go undercover for six months.’ ”
Ivanka said she was apprehensive about backlash over her father’s pronouncements.
“Look, I think there are a lot of people who assumed we wouldn’t be selected because of the politics,” she said. “I certainly had my fair share of concern that that would affect us adversely.”
A 60-year commitment
After receiving 10 bids for the project — from Hilton, Park Hyatt, Montage Hotels & Resorts and the National Museum of the Jewish People — GSA officials asked their teams to present their proposals during a three-day period in December.
Trump and Ivanka flew by private jet from a family event in Florida to Dulles International Airport for a one o’clock presentation Dec. 19 at the GSA’s blocky regional headquarters near L’Enfant Plaza. Their plan: a 261-room deluxe hotel with three restaurants, a Trump-branded spa, plus a lounge, 35,000-square-foot banquet facilities and a curated museum dedicated to the building’s history and the Congress Bells.
Trump went first, talking up some of the company’s previous projects. But Ivanka’s presentation that followed made more of an imprint, according to an official in the meeting who spoke on the condition of anonymity because of procurement rules preventing public statements about the process.
Some within the GSA expected that the Trumps would scoff at having to lease the property for 60 years — a measure aimed at preventing a partner from flipping the treasured landmark and splitting town. But Ivanka seemed to embrace the building’s permanence as a Trump property, suggesting that her daughter, Arabella Rose, then not yet five months old, would one day oversee it.
“She fully anticipates her daughter growing up in the business and being out there years down the road negotiating the renewal,” said the official. “So you really get the sense, in terms of the long-term lease interest of private ownership, of them having it, if you will, as a jewel within the portfolio.”
In selecting the Trump plan two months later GSA officials – under heavy pressure from Congress and the president to produce savings from under-utilized real estate – pointed to the $200 million in announcing the selection, saying the project would “save millions in taxpayer dollars” and “provide a positive economic return for the Federal Government.”
But the selection set off a revolt among some competing bidders. District developer Monument Realty complained to news media and congressional staff that it had offered more in rent for the property. Hilton Worldwide and its hometown president and chief executive, Arlington native Christopher J. Nassetta, had proposed a Waldorf Astoria for the building in tandem with Reston-based developer Metropolitan Partnership. Metropolitan filed a protest in April, criticizing the selection process and taking aim at Trump’s history of bankruptcies, lack of experience in Washington and plan for the property.
“The record of Trump bankruptcies indicates that Trump will be an unreliable business partner,” wrote Cary Euwer of Metropolitan. “Trump has a distinctly different posture at bid and award press conferences than it has in bankruptcy and court proceedings that emerge as a project fails. The public record reveals that Trump projects often fail, and fail with a great deal of negative publicity.”
Metropolitan offered to spend only $140 million to renovate the building, compared to Trump’s $200 million, but argued that Trump’s proposal, “would require Trump to obtain hotel room revenues which are simply not obtainable in the Old Post Office’s location based on the concepts for redevelopment.”
GSA contracting officer Kevin Terry responded with a seven-page letter rejecting the protest for procedural reasons and defending the Trump choice, saying Trump’s estimates for revenue per hotel room, when compared with other hotel bidders, were “by no means unreasonable.”
Trump gloats about the victory, saying, “We will build the greatest hotel that Washington has ever seen.”
“There will never have been a comparable hotel to what we’re going to do with the Old Post Office.”
Ivanka, now busily at work meeting with historic preservation officials, balks at suggestions that she and the company would damage the building’s historic aspects. “Anyone who is concerned about how we may alter or affect the historic character of the building can be assuaged by looking at our plans,” Ivanka said, adding. “This isn’t, I think, a very polarizing concept.”
Trump said he wasn’t so focused on making money and has no timeline for when the project ought to show a return on the investment. Is there a market of Washington travelers willing to pay up to $700 to stay in a hotel with his name on it?
“Maybe, and maybe not,” he said. “And you know if there isn’t, it’s okay, because we have a lot of money. And we’ll have a beautiful painting.”