Mayflower Hotel's owner struggling to make loan payments

By Jonathan O'Connell
Monday, April 26, 2010

By Jonathan O'Connell

The Renaissance Mayflower Hotel has been a famous Washington stopping point since 1925 -- Harry S. Truman called it "Washington's second-best address" after a certain rest stop at 1600 Pennsylvania Ave.

It is not, however, immune to the current fallout from overzealous real estate bets.

Rockwood Capital of San Francisco purchased the 657-room hotel for $260 million in 2007 but is struggling to make loan payments, according to the Realpoint credit rating agency, of Horsham, Pa.

The Mayflower has had to cut room rates -- it took in $247 in revenue per room in 2009, compared with $266 in 2007 -- and costs, according to Realpoint's Frank Innaurato. "It appears that the borrower remains committed to the property but is looking to restructure its current debt," Innaurato said.

Even though Rockwood paid for more than $21 million in renovations on the property, Realpoint estimates its current value at only $126 million, less than half what it sold for. The hotel has not missed a loan payment yet, but Realpoint wonders how long that can continue. A spokeswoman for Rockwood declined to comment.

Located six blocks from the White House at 1127 Connecticut Ave. NW, the Mayflower isn't the only hotel that has changed hands recently and come under pressure to justify its purchase price.

One of the city's largest hotels, the Washington Marriott Wardman Park, sold for $300 million in 2005 to a partnership of CIM Group, of Los Angeles, and Chevy-Chase-based JBG. The owners have since entered into a legal battle with Marriott and the city over plans to convert portions of the property to residential units.

"Just about every hotel that's been sold in the last few years is having problems," said Emily Durso, president of the Hotel Association of Washington, D.C.

She said managers of these properties are facing unattainable expectations to cut costs and rent rooms at high rates. "A lot of these hotels were sold at the top of the market, and these buyers were assuming annual 6 percent increases forever, and when that flattened out they were caught short," she said.

The Mayflower's troubles aren't welcome news to the corridor from Farragut Square to Dupont Circle. Retailers including Talbots and California Pizza Kitchen closed recently, and in February and March alone, four commercial properties between 1300 and 1600 Connecticut Avenue NW were sold. The slowdown allowed one developer that typically focuses on emerging neighborhoods, D.C.-based LaKritz Adler, to buy 1501-1503 Connecticut Ave., which overlooks Dupont Circle.

"The merchants and shops here have been holding their own through the recession," said Leona Agouridis, of the Golden Triangle Business Improvement District, which represents property owners on the corridor. "They've noticed some decline, but not the extent by any means what other neighborhoods or areas have."

© 2010 The Washington Post Company