Trump International Hotel Washington DC sale put on indefinite hold

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The Trump organization’s efforts to sell the Trump International Hotel in Washington, DC, have been indefinitely suspended, casting doubt on the future of one of the president’s biggest financial bets, industry executives say .

The Trump organization hired Jones Lang LaSalle to buy the hotel from potential buyers last fall with hopes of a price tag of around $ 500 million. People familiar with the deal negotiations said none of the offers came close to asking price and several were below $ 250 million. Jones Lang LaSalle has confirmed to CNBC that efforts to sell the hotel are on hold indefinitely.

The hotel, which has become President Donald Trump’s glittering Washington social center and a crown jewel of Trump’s business empire, now faces additional pressures from the Coronavirus pandemic and the president’s post-election future.

Faced with a $ 100 million loan from Deutsche Bank on the property and persistent losses, the Trump organization could end up having to subsidize the company for years to come, or default on the loan and return the property. , according to industry leaders.

“At this point, they could either just hand over the keys or hold onto them and integrate them into whatever media company the president decides to create,” said Brian Friedman of Friedman Capital, who bid on the hotel and owns several hotels and properties. in the DC area. “I don’t think they’ll get the price they expected.”

A spokesperson for the Trump organization said: “There is absolutely no plan to default on the loan, and we have never missed a payment.” Regarding the stalled sales effort, the spokesperson said, “We had deals north of $ 350 million, which would have been the most expensive price ever paid for a hotel in Washington. DC and we have rejected these offers in their entirety. Trump International Hotel, Washington DC is one of the best hotels in the country, as rated by Conde Nast and many others. “

Gathering place for GOP

DC’s Trump International Hotel celebrated its grand opening in October 2016, just before the election, and quickly became the preferred gathering place for businesses, politicians and lobbyists keen to build relationships with the new White House. The property generated $ 40.5 million in revenue in 2019, the latest period available, according to disclosures filed with the Office of Government Ethics.

The Trump International Hotel in Washington, DC

Adam Jeffery | CNBC

According to election documents, campaign committees linked to the president or the GOP have spent around $ 3 million on the hotel since Trump became president. With strong business, the Trump organization began shopping around the hotel to potential buyers last October.

After widespread closures and travel restrictions in March, sales efforts were halted. Even the longtime mainstays of Washington’s hotel industry, like the St. Regis and Hay-Adams, continue to struggle to fill rooms and amid declining travel and tourism.

But even as the economy recovers, investors and hotel owners say the Trump Hotel is plagued by two conditions that make any sale unlikely. The Trump Organization does not own the property, known as the Old Post Office Pavilion, but rents it out to the General Service Administration.

Under the terms of the lease, the Trump organization is required to pay $ 3 million per year over 60 years, with the annual rent increasing with inflation. The company has also invested $ 200 million to renovate the property, of which around $ 100 million has been loaned by Deutsche Bank, according to the documents filed.

Trump admits he overpaid the property

Hotel owners say the $ 3 million a year lease – well above competing bids when Trump won the rights in 2011 – makes it difficult for any future owner to make a profit. Trump admitted to paying too much for the property, telling the Washington Post in 2012: “I mean, we’re paying too much for the old post office. But we’re going to make it so incredible that at some point in the future , that will be very good. “

Executives and hotel advisors say that given the rental terms, any offer to buy the hotel today is expected to be between $ 150 million and $ 175 million, less than the Trump Org. This leaves the Trump organization with the option of selling the property at a loss, defaulting on the Deutsche Bank loan and handing over the keys, or trying to hold onto the property and potentially make a profit.

Bidders say the Trump organization has also required any buyer to keep the Trump name on the hotel, which helps the Trump branding but could be problematic for any buyer.

For now, the Trump organization continues to pay its rents. A GSA spokesperson said “the tenant has remained in full compliance with the lease.”

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