After sitting abandoned for two years on the bank of the Potomac River in Washington, D.C., the legendary Watergate Hotel has attracted a suitor bearing a purchase agreement. The big question: Will the engagement result in a wedding?
The hotel has been for sale off and on over the past few years. Its brokers are optimistic about its chances now, but in this economic climate, financing isn't easy to secure. And the property, built in the 1960s, badly needs renovation.
Broker CB Richard Ellis listed the 262-room hotel for sale on behalf of owner PB Capital, part of the German lender Deutsche Postbank AG. It got a promising offer from Holland Development Group, which creates commercial projects in the District of Columbia, suburban Virginia and Boston.
“There's a contract being negotiated,” says Marc Magazine, senior vice president of CBRE's hotel partners division in Washington. “We absolutely expect the property to trade in the $40 million range.” He declined to reveal the amount of the offer.
To be on the safe side, however, the brokerage is gearing up for a major sales campaign in the event the deal doesn't close. “You never know if contracts get completed or fall through. We're getting ready to start the marketing process if need be,” says Magazine.
The Watergate Hotel is part of a five-building office and residential complex that gained notoriety in 1972 after a break-in at the headquarters of the Democratic National Committee. The scandal led to the resignation of President Richard Nixon in 1974.
The hotel's location in the heart of the city also is a powerful draw. “I don't know if there's a better site that overlooks the Potomac River with views of the Kennedy Center and the monuments,” says Magazine.
Besides Holland, potential suitors include hotel chains that want to plant their flags on the 42-year-old icon.
The Watergate has fallen on hard times. Previous owner Monument Realty hoped to win city approval to convert the hotel to residences, but the effort fell through.
Facing mounting bills, Monument closed the hotel and defaulted on its loan from PB Capital, a reported $43 million mortgage. “In the last 18 months, both residential and hotel markets turned sour on them, and they missed the market,” explains Magazine.
PB Capital foreclosed, and in July tried to auction the Watergate, but the results were disappointing. The bank bid $25 million and is again trying to sell.
To an extent, the Watergate is a victim of timing. With credit scarce, cash buyers are rare. And overhauling the shuttered icon will be costly — $10 million would be a drop in the bucket.
Holland Development is conducting due diligence and weighing whether to proceed with a nonrefundable deposit.
The suitor's current developments include the planned $50 million Potomac Overlook at the Watergate project, a 28,000 sq. ft. condo development near the Watergate complex.
Redevelopment could restore the grande dame Watergate to a showplace, says Magazine. “No question about it.”
DEALS & PROJECTS
McShane Construction Co., based in Rosemont, Ill., has completed a three-story, 83,000 sq. ft. office facility near Chandler, Ariz. for Orbital Sciences Corp. Based in Dulles, Va., Orbital is a developer and manufacturer of satellites and launch systems. The new structure was built to suit Orbital's specialized technological needs. It offers green features such as a reclaimed water irrigation system and roofing materials that moderate the effects of heat.
United Trust Fund, a Miami-based real estate investment firm, has completed the purchase and leaseback of a 383,920 sq. ft. Cracker Barrel distribution and warehouse facility in Lebanon, Tenn. It represents the company's 11th sale-leaseback transaction of 2009. The facility, valued at $15 million, was built in 1995. It is located on 35 acres near Cracker Barrel's headquarters. United Trust Fund specializes in sale-leaseback deals.
Day Pitney LLP has signed a long-term lease for 100,000 sq. ft. at 1 Jefferson Road in Parsippany, N.J. The transaction is reported to be the largest new lease signed in northern New Jersey in 2009. The building is part of the 850,000 sq. ft. Center of Morris County business campus. Day Pitney is a law firm with 375 attorneys and offices in several cities. The building is owned by a joint venture partnership. Mack-Cali Realty Corp. manages the property.