With Loan Default, Watergate Hotel Is at Risk of Foreclosure
Thursday, July 2, 2009
The Watergate Hotel is headed for foreclosure unless the lender agrees to new terms with Washington developer Monument Realty, officials with the company said yesterday.
The owners of the 251-room landmark overlooking the Potomac River in Northwest Washington defaulted on a $70 million loan that came due this week, another fallout from the real estate crash and the collapse of Lehman Brothers, a partner and equity investor in the property.
Hotel loans are in default across the country as travel dries up. But the Watergate, one of the city's most famous properties, has been closed since Monument bought it five years ago. It was hit not only by Lehman's bankruptcy but also by a lengthy legal battle with neighbors over the company's initial plans to turn it into luxury co-ops. By the time Monument was ready to redevelop it last year as a luxury hotel, the residential market had soured.
"Monument is still committed to the Watergate," Michael J. Darby, a company principal and co-founder, said yesterday. "We still believe it's a phenomenal asset and will have the potential to be a great hotel in the future." He said Monument "would want to stay involved in the project if at all possible."
A source familiar with the negotiations said Monument is working with the lender, New York-based PB Capital, to restructure the loan by bringing in new investors and diminishing Lehman's equity stake so renovations can proceed. At a time when millions of dollars in loans on commercial properties are coming due, lenders in some cases are giving extensions, but it's unclear whether Monument can avoid foreclosure.
"Everyone thought this would be a home run at the time," said Dan Fasulo, managing director of Real Capital Analytics, a New York firm that tracks commercial real estate.
But the cachet of one of Washington's most well-known addresses, part of the complex of six buildings made famous by the June 17, 1972, burglary that led to President Richard Nixon's resignation, may end up being its savior.
"At the end of the day, it's a landmark," said Kurt Sachs, senior managing director at PB Capital, which holds $40 million of the Watergate loan. "The fact is, we have not foreclosed. There are investors with an interest in buying this. The question is, what kind of price are they offering us?"