On paper, a piece of the Watergate complex should be a hot property. And it’s going for cheap.
Who doesn’t know the name of the building where a burglary in 1972 spooled out to bring down a president?
Who wouldn’t want to own a piece of Washington history? Steps to the Kennedy Center. Views of the Potomac River. A short walk to great shopping and eating in Georgetown; an easy jaunt to the monuments.
Why, then, has part of the hot property gone cold and dark since owners shut down the hotel in 2007? The answer is complex, but it provides a perfect window into the distressed real estate markets here and across the country.
The hotel and the garage beneath are in sore need of repair.
“That’s a large part of the problem,” says Michelle LaMotte, a consultant for the hospitality industry. “It’s in bad need of refurbishment. The value of the hotel has dropped. A lot of the potential buyers who might be bottom-fishing can’t secure financing.
“Terrific location,” she adds, “but you have the deferred renovations, the current economic climate, and investors can’t get a loan. It’s not easy.”
It looked easy when Michael Darby and Jeffrey Neal, two daring and edgy developers, bought the hotel for $50 million in 2004. Washington was in another real estate boomlet, big loans were plentiful and cheap, Darby and Neal started Monument Realty and snapped up deals from Alexandria to Bethesda and points in between.
Back in its day, Katharine Hepburn, John Wayne and Andy Warhol bunked at the hotel; Darby and Neal planned to close the hotel, turn it into condos called Belles Rives at the Watergate, and sell the penthouse pads for $3 million.
Alas, the condo market crashed. The partners made a U-turn and promised a luxury, five-star hotel. At which point the wealthy and well-connected residents of the adjoining apartments sued Monument for changing plans. The hotel, closed for years, started to deteriorate. The garage leaked and crumbled into the one below. Those owners sued.
Then things got bad on Wall Street. Turns out the lenders for the Watergate deal and more than a dozen Monument projects were Lehman Brothers. They went bankrupt in 2008, and as the house of cards collapsed, the Watergate was at the bottom of the heap.
A few months ago, Monument defaulted on its loan, and the Watergate went up for auction. The unit of the German bank that owned it started bidding at $25 million. No takers.
But in the world of high finance, everything has a price, especially a property with a great name on the Potomac River. Word broke this week that a deal was cooking to sell the Watergate Hotel to Holland Development, out of D.C., for about $40 million. That’s $10 million less than Darby and Neal paid in 2004.
Could be a good deal for Holland and a better one for Washingtonians — if the developers actually build that dream hotel this time around.
E-mail Harry Jaffe at [email protected].
