When Donald Trump proposed spending $ 200 million a decade ago to renovate one of Washington’s most valuable historic buildings into a luxury hotel, competitors and critics laughed.
They argued that Trump could never profitably run a hotel by paying that much.
It turns out they were right. The hotel has suffered millions in losses over four years, according to financial documents provided by Trump’s company to the government and released by the House Oversight Committee in October.
But the former president’s company recently signed a deal to sell the lease of the historic Old Post Office pavilion to Miami-based investment firm CGI Merchant, which hopes to turn the property into Waldorf Astoria in partnership with Hilton Worldwide, three acquaintances said. with an agreement that spoke on condition of anonymity to share the details of the transaction. One of the people said the price was $ 375 million, surpassing the previous record for Washington hotel sales.
Experts say the price will also bring Trump a hefty profit, likely $ 100 million or more, based on financial documents and the company’s lease with the state. This would provide Trump with a profit margin that many hedge fund managers would envy, thanks to a market that buys up hotels in anticipation of the pandemic subsiding and travel returning.
“Hotels are in vogue. Even in cities where things are not going well, people pay for hotels at reasonable prices, ”said Suzanne Mellen of financial services company HVS. “We are seeing extraordinary prices.”
“I assume every global luxury chain has an interest in this property,” said Michael Bellisario of financial services firm Baird.
Representatives from the Trump Organization, CGI Merchant and Hilton declined to comment.
There is no indication that politics played a role in the proposal for CGI Merchant and its CEO and founder Raoul Thomas. Experts say the price, while high, is likely from a business perspective, but some have wondered how CGI can profit from such a high price.
Hotel prices are set on a per room or per key basis. In Washington, DC peaked in 2016, when industry data showed the Capella Hotel Georgetown – now the Rosewood Hotel – sold for about $ 1.3 million per key. Trump’s proposed sale at $ 375 million for 263 rooms would be about $ 1.43 million per key, 10 percent higher than Capella’s sale price.
Hotel brokers said the historic nature of the 122-year-old building, a shortage of five-star hotels in Washington, and its location on Pennsylvania Avenue – the backdrop for the president’s inaugural parade every four years – likely influenced the price.
“How often do you have a hotel built the way it was built?” said Dan Hawkins of Berkadia Real Estate Advisors. “Pure granite. Ideally located between the White House and the Capitol. “
If the deal is closed, Trump will fare much better than expected when he won a deal from the General Services Administration nearly a decade ago, when the government asked private companies to rebuild the building from a government office building, a food court and a failed shopping mall. …
In choosing Trump for the project, the government overlooked his past bankruptcies, lawsuits and false claims about President Barack Obama’s birthplace. His company agreed to spend $ 200 million on the building’s restoration, and Trump ended up spending $ 217 million on the project – $ 194 million on building renovations and $ 23 million on furniture, materials and retail space, according to financial statements. His company reportedly gave the hotel millions more to keep the property afloat while it was losing money.
If he completes the sale, Trump will have to pay Deutsche Bank the $ 170 million he borrowed to build the project. In addition to the $ 3 million he pays to GSA annually in base rent, the lease stipulates that Trump pays GSA a small fraction of the purchase price, probably less than $ 10 million. The regulation states that if the Trump Organization achieves an annual profit of 20 percent of the sale, the GSA receives 15 percent of any remaining revenue beyond that level.
That leaves more than $ 100 million in potential profits for Trump when he transfers property – one that has become a symbol of his willingness to mix politics with business in a way no other president does, leading to numerous legal and ethical conflicts with Democrats and government watchmen. dogs.
The hotel opened almost at the same time as Trump’s 2016 election victory and began with huge success when, during Trump’s inauguration, he was able to charge sky-high rates for his rooms. The hotel initially booked a series of embassy events, for which Trump received tens of millions of foreign payments, and also hosted foreign leaders when they traveled to Washington to meet with him. Members of his cabinet, and then his attorney Rudolph V. Giuliani, usually stayed there.
Despite the Trump company’s decision to donate profits from foreign governments to the U.S. coffers rather than sell to embassies, one controversy after another has plagued property. The District of Columbia attorney general is suing Trump’s inaugural committee that used the hotel, and the case continues.
Lawsuits over whether Trump can accept payments from foreign governments have dragged on for years. Giuliani’s attempts to pressure Ukraine to obtain political services, mainly from a hotel, led to Trump’s second impeachment.
Trump and his family criticized the controversy as politically motivated attacks on him and his presidency, while critics said he should have sold his business before entering the White House.
“Donald Trump should never have been allowed to leave his DC hotel as president,” said Noah Bookbinder, president of the Citizens for Responsibility and Ethics Watch Group in Washington. “He had to give it up along with the rest of the business before taking office.”
According to the financial documents, the hotel was never able to consistently make a profit, and repeated payments were required from Trump’s main company to stay afloat. The average daily rate charged for rooms dropped to $ 478 in its second year, down from the initial $ 535, and the hotel was still only slightly more than half full, according to expert analysis of the hotel’s financial records.
Trump was able to reap other financial benefits as well. For the preservation of the historic building, the National Park Service granted the Trump Organization a federal tax credit, which experts say could cost up to $ 32 million. It is unknown if he took advantage of the loan, as the IRS does not disclose information on individual taxpayers and Trump does not publish his tax returns.
Trump was also able to cut deals in which the hotel paid other companies it owns for the sale and reservations of rooms, in fees that totaled $ 4.3 million from its opening in mid-2016 to mid-2020, according to documents released by the House. representatives.
CGI Merchant and Hilton have bet that once the Trump name disappears from the building, the Waldorf brand will attract more customers at higher prices. Hilton has offices in Waldorf in some of the world’s most prestigious locations, but none in Washington, despite the fact that Hilton is headquartered in McLean, Virginia and CEO Christopher J. Nassetta grew up in Arlington, Washington. Virginia
“If it weren’t for the political issue, this property would have performed very well,” said Savills’ Marc Magazine. “Is this the right bet? I would not say that. This is a lot of money. But I really think that in a few years, when you get out of the pandemic, there will be an opportunity to raise prices for five-star hotels. ”