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Moby
07-24-2009, 06:41 AM
http://www.washingtonpost.com/wp-dyn/content/article/2009/07/21/AR2009072101619.html?wprss=rss_metro/dc


$25 Million Minimum Unmet; Lender Controls Landmark

By Lisa Rein
Washington Post Staff Writer
Wednesday, July 22, 2009

At least two developers said Tuesday that they plan to make offers on the Watergate Hotel in a private sale after a public auction failed to attract any bids, despite international attention.

The auction result left in question the fate of the 251-room hotel forever linked with the scandal that brought down President Richard M. Nixon. The German bank that foreclosed on the debt-ridden owners and made a $25 million credit bid Tuesday will now market the 12-story property to interested buyers -- and several have expressed interest in negotiating privately, said David Astrove, an attorney for the lender, PB Capital.

One is Monument Realty, which bought the Watergate in 2004 with financing from now-bankrupt Lehman Brothers and defaulted last month on a $40 million note held by the bank, a subsidiary of Deutsche Postbank AG. Monument principal Michael Darby said Tuesday that he has commitments from new investors to move forward with the company's plan to restore the property to a five-star hotel. But the team wants to negotiate directly with the bank.

"Whether the bank will work with us, I don't know," Darby said. He described the Watergate as a "complicated asset" that needs more than $100 million in renovations. It will require any potential developer to invest time and money in assessing any structural problems in order to price construction costs, he said.

"For someone else to get up to speed is almost impossible," Darby said.

Virginia-based developer Robert Holland, whose projects include the Georgetown waterfront complex, said his team of investors is interested and is talking with a Dubai-based luxury hotel chain, Jumeirah, about operating the Watergate. They attended the auction but didn't participate. "A lot of people are going to be visiting PB Capital to see if they can make a deal," Holland said.

The 10 bidders who came to the auction each qualified with $1 million certified checks -- but were not willing to offer the $25 million floor set by the bank. The auctioneers learned of the minimum 10 minutes before they started.

"We're going to see how it feels," said Neil H. Shah, president of Hersha Hospitality Trust, a Philadelphia-based hotel developer, before the auction began in Suite 750 of the Wisconsin Avenue offices of Alex Cooper Auctioneers.

The potential bidders sat in two rows of white chairs. Behind them, 150 spectators -- international media, real estate executives, residents of the apartment towers in the Watergate complex and other curiosity seekers -- crowded into the small room. As it became harder to identify bidders among the tanned faces and elegant suits, auctioneer Paul Cooper yelled: "If you intend to bid on the Watergate Hotel, you must register with Marcy," who was seated at a table in the front of the room. Most bidders declined to identify themselves.

The scene was so chaotic that two auctions scheduled before the Watergate event were held in the hallway outside.

Bidders spoke with colleagues in hushed tones and messaged on their BlackBerrys and iPhones. A resident of the Watergate East building walked up to Darby, the foreclosed-on owner, and offered his hand: "I just want to tell you how sorry I am things worked out this way."

"I've been better," Darby replied. A bidder in the front row stood up, turned around and surveyed the crowd, then continued talking on his cellphone.

At 10:40 a.m., the room grew quiet as the auctioneers began to read 16 pages of legal jargon describing mind-numbing details of the property. A bidder from Southeast Asia took his copy of the foreclosure notice out of his briefcase and followed along with his left index finger, but the attention of most in the room had strayed. The air-conditioning was blasting but people sweated.

After 40 minutes, the auction started. "I have $25 million!" Joseph Cooper said as he opened the bidding at 11:15 a.m. "Here it goes! A Washington landmark!"

Shah was out of contention. "We were prepared to spend somewhere in the $10 to $15 million range," he said.

After six calls and no bidders, a man in the front row stood up and the auction staff followed him into the office behind the glass wall. It was Astrove telling them that the bank would take the property.