By Lisa Rein and Martin Ricard
Washington Post Staff Writers
Sunday, July 19, 2009
The Watergate Hotel lost its luster years ago, its marble floors, rich colors and grand interiors dusted over with age. Its 251 rooms have stood empty since 2007, and for a year its debt-ridden owners have been trying to unload it. On Tuesday, the national landmark may find its suitor.
The bank holding the $40 million loan is putting the foreclosed property up for auction, and in real estate circles, the much-anticipated sale is flooding the phones, fax lines and e-mail in-boxes of a District auction house. A luxury hotel chain from the Middle East might be interested. A big-time developer who built the Georgetown waterfront complex definitely is. So is a hotel company from London, not to mention dozens of other would-be owners.
Washington's 26,000-room hotel market has remained relatively stable during the recession, but the prospect of a new owner promises to return one of the nation's most famous pieces of real estate to prominence.
Paul Cooper, who will be wielding the gavel, has fielded inquiries from media outlets from Tokyo to Los Angeles. Bargain hunters are sniffing around, but Cooper said he has also talked to serious bidders.
"They're simply doing their due diligence and fact-finding," said Cooper, a company principal at Alex Cooper Auctioneers. Opening bids start at $1 million at 10:15 a.m. at its Wisconsin Avenue offices.
Many in Washington consider it a trophy property no matter what.
But some facts might give pause to anyone thinking about snapping up the empty 12-story hotel across from the Kennedy Center where the Watergate burglars slept before they broke into the adjoining office complex in 1972, setting off the scandal that brought down President Richard M. Nixon.
It has been neglected for years and needs $100 million in renovations just to make it habitable, developers familiar with the Watergate say. Monument Reality, which bought it for $45 million in 2004, has not paid the hotel's property taxes since last year, which translates to at least $250,000 the city will collect at a sale.
Neighbors can be testy, as when they engaged Monument in a three-year legal battle over its original plan to convert the hotel to co-ops. The Watergate's status as a historic landmark could slow down the permit process. And the hotel must lease parking from one of the complex's residential buildings, an arrangement that has led to disputes over who should pay for repairs.
Even as a vacant building, the tab for security, electricity, heat, emergency systems, insurance and other expenses comes to $100,000 to $150,000 a month. Monument closed it in 2007 to prepare for its conversion into a luxury hotel.
Lehman Brothers, its financing partner, went bankrupt last year. Monument began seeking buyers for the hotel, people familiar with the negotiations said, but none materialized.
Even if someone were to grab the place for a mere $20 million or $30 million, who can get $100 million in financing to restore the building in today's jittery capital markets?
"That doesn't sound to me like a bargain," said Warren Dahlstrom, an investment broker who once sold one of the office towers. "Hotel development financing is impossible."
In years past, foreign investors would have been the most likely buyers for such a high-profile property. But real estate brokers and developers said the hotel could very well be bought by the bank lender, New York-based PB Capital, which holds the outstanding $40 million debt.
If that happens, at least one private buyer will definitely step forward to try to buy it back: Robert Holland, an international residential and commercial developer whose Washington projects include the Georgetown waterfront complex and Dupont Circle's West End.
Holland said his group of investors does not want to participate in a public auction but would be interested in a private purchase.
"At the end of the day, I believe this will be the premiere hotel in Washington," Holland said. "Eighty percent of the rooms have water views, and they're not great -- they're spectacular."
Holland said he has spoken with the Jumeirah Group, owners of a chain of luxury hotels from New York to Dubai. Jumeirah executives told him that they also would consider buying the property from the bank but not at auction, he said. A Jumeirah spokesman could not be reached to comment.
The Watergate's residential neighbors recall the beautiful browns and yellows that adorned the interior, the marble floors, the painting of Queen Elizabeth that greeted guests as they entered the elevators, the restaurants with old-fashioned furnishings.
"I miss the light that the Watergate provided," said Bill Diedrich, a Watergate East resident. "It's a light that should be re-lit."
Although the glamour of the hotel has long since faded, many say the spirit of the Watergate Hotel remains.
"It will always be first-class," said Dorothy Franklin, 75, one of the first Watergate residents to live in the complex when it originally opened, "because, after all, it's historical."
She and other neighbors want something to happen there, something to replace the abandoned desks and old computers strewn across a dirty floor in the lobby, the padlocked carousel door that used to see a steady rotation of guests, and the darkness, broken only by the sun shining dimly through drawn shades.