The Trump Organization's efforts to offer the Trump International Hotel Washington, D.C., have been put on indefinite hold, casting doubts on the future of among the president's biggest monetary bets, according to market executives.
The Trump Organization worked with Jones Lang LaSalle to shop the hotel to prospective purchasers last fall hoping for a rate of about $500 million. People acquainted with the offer talks said none of the quotes came close to the asking cost, and a number of were for less than $250 million. Jones Lang LaSalle confirmed to CNBC that efforts to offer the hotel are on “indefinite hold.”
The hotel, which became the flashing social hub of President Donald Trump's Washington and a crown jewel of Trump's service empire, now faces the added pressures of the coronavirus pandemic and the president's post-election future.
Confronted with a $100 million loan from Deutsche Bank on the residential or commercial property and continued losses, the Trump Organization may end up either needing to fund business for several years to come, or default on the loan and hand back the home, according to market executives.
“At this point, they could either simply turn over the keys, or keep it and make it part of whatever media business the President decides to create,” said Brian Friedman of Friedman Capital, which bid on the hotel and owns numerous hotels and homes in the DC area. “I just do not believe they're going to get the price they expected.”
A spokesperson for the Trump Organization stated, “There are absolutely no strategies to default on the loan, nor have we ever missed a payment.” As for the stalled sales effort, the spokesperson said, “We have had offers north of $350M which would have been the most expensive rate ever paid for a hotel in Washington D.C. and we have actually declined those deals completely. Trump International Hotel, Washington D.C. is one of the finest hotels in the nation as rated by Conde Nast and so numerous others.”
Gathering spot for GOP
The Trump International Hotel in DC celebrated its grand opening in October, 2016, right before the election, and rapidly became the favorite event area for business, political leaders and lobbyists excited to develop relations with the new White House. The residential or commercial property took in $40.5 million in earnings in 2019, the most recent duration readily available, according to disclosures filed to the Office of Government Ethics.
According to election filings, campaign committees tied to the president or the GOP spent about $3 million at the hotel given that Trump became president. With company strong, the Trump Organization began shopping around the hotel to possible buyers last October.
After the extensive lockdowns and take a trip limitations in March, the sales efforts were halted. Even longtime long time pillars of the Washington hotel service, like the St. Regis and The Hay-Adams, continue to struggle to fill spaces and amidst the drop in travel and tourism.
However even when the economy recovers, hotel investors and owners say the Trump hotel is strained by 2 conditions that make any sale unlikely. The Trump Organization does not own the property, called the Old Post Office Pavilion, however rents it from the General Services Administration.
Under the lease terms, The Trump Organization is needed to pay $3 million a year over 60 years, with the yearly lease escalating with inflation. The business also invested $200 million to renovate the home, with about $100 countless that loaned by Deutsche Bank, according to filings.
Trump admits to overpaying for the residential or commercial property
Hotel owners state the $3 million-a-year lease– far above competing bids when Trump won the rights in 2011– makes it difficult for any future owner to make a profit. Trump confessed to paying too much for the home, informing The Washington Post in 2012: “I indicate, we are paying excessive for the Old Post Office. However we will make that so remarkable that at some point in the future it'll be really great.”
Hotel executives and consultants say that offered the lease terms, any bid to buy the hotel today would need to be around $150 million to $175 million– less than the Trump Org.'s $200 million financial investment. That leaves the Trump Organization with the alternatives to sell the property at a loss, default on the Deutsche Bank loan and turn over the keys, or attempt to keep the home and ultimately make a profit.
Bidders say the Trump Organization also needed any purchaser to keep the Trump name on the hotel, which assists the Trump brand however might be problematic for any buyer.
In the meantime, the Trump Organization continues to make its lease payments. A GSA representative stated that “the renter has actually remained in full compliance with the lease.”