The Trump International Hotel in Washington, D.C.
Adam Jeffery | CNBC
The Trump Organization's efforts to sell the Trump International Hotel Washington DC have been put on hold indefinitely, raising doubts about the future of one of the president's biggest financial bets, according to industry executives.
The Trump Organization hired Jones Lang LaSalle last fall to purchase the hotel from potential buyers in hopes of a price of about $ 500 million. Those familiar with the deal talks said none of the bids came close to the asking price, and some for less than $ 250 million. Jones Lang LaSalle confirmed to CNBC that the efforts to sell the hotel are "indefinite."
The hotel, which became the glittering social hub of President Donald Trump's Washington and the crown jewel of Trump's business empire, is now facing the added pressure of the coronavirus pandemic and the post-election future of the president.
With a $ 100 million loan from Deutsche Bank on the property and ongoing losses, the Trump Organization may need to subsidize the business for years to come or default on the loan and return the property, industry executives said.
"At that point, they could either just hand over the keys or keep them and make them part of the media company the president wants to start," said Brian Friedman of Friedman Capital, who is bidding on the hotel and owns several hotels and properties in DC -Area. "I just don't think they'll get the price they expected."
The Trump Organization did not respond to requests for comment.
Meeting point for GOP
The Trump International Hotel in DC celebrated its grand opening shortly before the October 2016 election and quickly became the meeting place of choice for corporations, politicians and lobbyists looking to build relationships with the new White House. The property generated revenues of $ 40.5 million in 2019, the last available period. This is evident from information submitted to the Office of Government Ethics.
According to election records, campaign committees tied to the president or the GOP have spent about $ 3 million at the hotel since Trump became president. With strong business, the Trump organization began shopping for potential buyers around the hotel last October.
After the widespread bans and travel restrictions in March, sales efforts were halted. Even long-standing, long-standing pillars of the Washington hotel business, like the St. Regis and the Hay-Adams, continue to struggle to fill space and amid the decline in travel and tourism.
But even if the economy recovers, hotel investors and owners say the Trump hotel is weighed down by two conditions that make a sale unlikely. The Trump Organization does not own the property known as the Old Post Office Pavilion, but rents it from the General Services Administration.
Under lease terms, The Trump Organization is required to pay $ 3 million annually over 60 years, with annual rent escalating with inflation. The company also invested $ 200 million to renovate the property, approximately $ 100 million of which was loaned, according to Deutsche Bank.
Trump admits he paid too much for the property
Hotel owners say the $ 3 million-a-year lease – well above the competing bids when Trump won the rights in 2011 – makes it hard for any future owner to make a profit. Trump admitted to paying too much for the property and told the Washington Post in 2012, "I mean, we're paying too much for the old post office. But we're going to make this so amazing that at some point in the future it will be very beautiful will be." . "
Executives and consultants at the hotel say that given the rental terms, any offer to buy the hotel today would have to be between $ 150 million and $ 175 million – less than the Trump Org's $ 200 million investment Opportunity to sell the property at a loss, default on Deutsche Bank loan and surrender the keys, or try to keep the property and eventually make a profit.
Bidders say the Trump Organization also requires every buyer to keep the Trump name in the hotel, which helps the Trump brand but could be problematic for any buyer.
Currently, the Trump Organization continues to make lease payments. A GSA spokesman said "the tenant has fully complied with the lease".