Bad news for D.C. hotels is bad news for D.C.’s economy:
» About 28,000 employees work in city hotels.
» Second largest employer, behind government
» Nearly $5.5 billion in revenue
Source: Hotel Association of Washington, D.C.
No bidders stepped in to buy the iconic Watergate Hotel at auction Tuesday, leaving a New York mortgage company holding on to one of D.C.’s biggest white elephants.
About 10 bidders paid $1 million each for the opportunity to bid on the Watergate, which has sat empty since 2007, but none was willing to go above lender PB Capital Corp.’s $25 million opening bid. The hotel is part of the legendary complex on the Potomac River, scene of the infamous burglary that forced President Richard Nixon out of office.
“It’s a very bad time to try and sell a hotel,” said Emily Durso, president of the Hotel Association of Washington, D.C. “It’s a fabulous location, it’s a fabulous name. It’s a great buy for somebody, but money is really tight.”
PB Capital took over the hotel after D.C. firm Monument Realty defaulted on nearly $70 million in loans.
The auction did not include the three apartment buildings nor two office buildings in the famous complex.
PB officials said ahead of Tuesday’s auction that they probably would use the unpaid balance on the loan to bid on the hotel. Monument bought the 250-room hotel in 2004 and announced ambitious plans to turn it into a luxury apartment complex.
But Monument’s co-founders, Jeffrey Neal and Michael Darby, were backed by the wrong pony: Their investment partner was Lehman Bros., which went belly up last year in the subprime meltdown.
Even before Lehman Bros. went out of business, Monument was suffering. After developing nearly 5 million square feet of office space and 3,500 condos, houses or apartments, the company saw two high-profile condo projects in Arlington flop, two D.C. projects fail, and was sitting on an empty office building. By early 2008, the Washington Business Journal was wondering aloud whether Monument could survive.
Monument officials didn’t respond to requests for comment.
The Watergate will require “a major renovation,” Durso said, which probably spooked bidders Tuesday.
Paul R. Cooper, whose company, Alex Cooper Auctioneers, ran Tuesday’s bidding, said the hotel didn’t command a higher price because bidders didn’t have access to the building.
“If all you’re looking at is a closed door, how much are you going to pay?” he said.
The hotel industry has been hit hard by the recession. Bloomberg News reported Tuesday that the District’s hotel occupancy dropped to 74 percent in the first five months of this year.
