Watergate buyer stuck in parking garage logjam
Thursday, March 25, 2010
The sale of the Watergate Hotel, which is in foreclosure, seems as star-crossed as ever.
In December, it looked as if Monument Realty was set to buy back the D.C. hotel from the bank that foreclosed on it last summer. The D.C. developer planned to renovate the 251-room Washington landmark into a luxury hotel and was in talks with potential operators.
Now, a legal battle over the valuable parking garage under the hotel has derailed that deal -- and threatens to throw a wrench in a sale to other potential buyers.
PB Capital, the German-owned bank that held the loan and took the hotel back at a foreclosure auction in July after no bidders came forward, is in a legal battle with the neighboring Watergate East cooperative over whether the bank can continue leasing the garage, along with meeting space, from the co-op -- and for how much.
And Monument, although it no longer owns the building overlooking the Potomac River, is asking a D.C. Superior Court judge for permission to file a claim against Watergate East, seeking $20 million in damages.
Unless the lawsuits are settled, ownership of the hotel -- part of a complex made famous by the burglary that led to President Richard M. Nixon's resignation -- is likely to remain in limbo for months.
Monument had been paying the co-op, which owns the garage, $12 a year for the use of 83 underground spaces under a 99-year lease that dates to the 1960s. By 2006, the garage was in disrepair, with falling chunks of concrete and other problems, according to court papers. Watergate East filed its suit against Monument before the foreclosure auction in July, seeking to cancel the lease, retake the space and recoup $1 million in damages to make repairs, according to court papers. Monument, whose financing had been backed by now-bankrupt Lehman Brothers, defaulted on a $40 million loan in June.
Watergate East then sued PB Capital once the bank took possession of the hotel. The bank filed a counterclaim last December, saying that it could not sell the building and that the $12-a-year lease should stay in effect because Monument had intended to make the repairs before foreclosure. The garage space has the hotel's only underground parking, and a buyer is unlikely to bid on a property in the congested Foggy Bottom area without available spaces.
Enter Monument principal Michael J. Darby, who said this week that he is seeking damages against Watergate East for wrongfully terminating the parking lease.
"It's been a messy process," Darby said. "We were diligently pursuing the repairs. The bank put us in default and foreclosed on us." Because he waited so long to pursue a counterclaim, Darby must get permission from the court to file. Darby said his letter of intent to buy back the hotel expired Jan. 15, but he said that he still wants to proceed and has secured financing. "We're ready to go on all fronts," Darby said.
Watergate East attorney Russell Drazin declined to comment. Kurt Sachs, senior managing director at PB Capital, did not respond to several e-mails.
Meanwhile, the firm CB Richard Ellis is preparing to begin marketing the hotel again. Broker Marc Magazine called the parking dispute the "last piece of the puzzle" that will attract serious bidders.
"We're excited about the prospects of getting the Watergate [sale] moving again," Magazine said.