President-elect Donald Trump might face a financial loss should he opt to sell his Washington hotel now, complicating the possibility of a clean break from the property, which has become a flash point for his conflicts of interest around the globe.
As president, Trump would be on both sides of the lease for the 263-room Trump International Hotel Washington, D.C., which opened in September in a renovated post office building rented from the federal government. For the Trump Organization to recoup its $212 million investment in the makeover, a buyer would have to pay about $806,100 per room. It’s unclear whether the property could attract a bid that high.
“At $800,000 a room, it would certainly be at the top end of the market for luxury hotel values” in the district, said Andy Wimsatt, a Washington-based managing director in hotel brokerage and investment sales at CBRE Group Inc., the biggest commercial property broker. Since the hotel has only been open for three months, there’s no meaningful income data yet.
Among Trump’s many potential conflicts of interest, the Washington hotel stands out. The lease prohibits an elected official from benefiting from the deal, but the paths to divestiture aren’t straightforward. Ethics specialists and lawmakers have pressured Trump to separate himself from the hotel, but even if he were to sell, the potential pitfalls could range from accepting a financial loss to criticism that higher bids were made to win favor with the next president.
“He and his children think of this as the crown jewel of their portfolio, and they would put up with a lot of criticism before selling it at a loss,” said Tom Baker, corporate managing director at commercial broker Savills Studley.
The Trump Organization has said it spent about $212 million – about 80 percent of it borrowed from Deutsche Bank – to redevelop the historic Old Post Office, located a short walk down Pennsylvania Avenue from the White House. Trump’s cost was 51 percent higher than that of a plan submitted by a group including Hilton Worldwide Holdings Inc., which called Trump’s revenue projections “unrealistic” in a 2012 protest.
Patricia Tang, director of sales and marketing for the Trump International Hotel, declined to comment. The president-elect’s transition team didn’t respond to an email seeking comment.
Luxury hotels in Washington have been attracting strong buyer interest. At least four sold during the past 18 months, fetching between $451,200 a room and a record $1.3 million a room, according to brokers. Three of the sales were in the posh Georgetown neighborhood, including the Four Seasons for about $1 million a room and the Ritz-Carlton for about $581,400 per room. The record was set by the 49-room Rosewood Washington, D.C., purchased in April by an affiliate of Hong Kong’s New World Development Co.
Unlike Trump’s hotel, those sales were so-called fee-simple deals, where the property and the land are sold outright. Trump pays $3 million a year in base rent for a 60-year ground lease with the federal General Services Administration, with two renewal options for 20 years each. Many buyers are put off by ground leases, whose terms vary widely, so leasehold properties tend to sell at discounts.
Of course, economics are just part of the equation in a potential sale of the property, where Trump’s name stands in gold letters and five American flags fly above its ceremonial front doors. Trump’s surprise win gives his brand new value, Baker said.
The valuation of the property “would be dictated by the prominent landmark status of the building and the appeal of buying an asset from a sitting president,” Baker said. “If the price were well above market, then you would have to question the motives of the buyer.”
Ethics experts and politicians of both parties have called on Trump and his family to divest from their businesses completely to resolve conflicts of interest. Without specifying his own role, Trump has said his sons Donald Jr. and Eric will take over the company and will not do “new deals” during his time in the White House. His daughter Ivanka is reportedly moving to Washington with her family to advise on presidential matters.
Trump controls the Washington hotel through his 77 percent ownership of a limited liability company, Trump Old Post Office LLC, and his eldest three children own about 7.4 percent each. One option for Trump would be to transfer ownership to his children, but ethics experts have said such an arrangement doesn’t sufficiently remove him from the business interests.
A sale would need to clear several hurdles. The GSA bars any sale for three years from the hotel’s opening, so any transaction would likely require a waiver from the agency. Should an outside person or group seek to purchase the lease from Trump, the GSA would have to approve the sale.
Frank Murray, a partner at Foley & Lardner who specializes in government procurement, said it’s unlikely such a deal could be pulled off before the Jan. 20 inauguration, adding that it could be complicated to adapt the lease, which is specific to the Trump Organization, to a new tenant. “You’d almost rather terminate the lease and do a new one tailored to the new person,” Murray said.
Meanwhile, Democrats are trying to apply pressure. Four Democratic lawmakers said in a Dec. 15 letter that Trump would be in violation of the lease if he doesn’t rid himself of all financial interests in the hotel before taking office. The GSA has said any such conclusion is “premature.”
If Trump benefited from the transfer, he could run afoul of the lease’s provision that appears to bar his participation in the first place, as it also forbids an elected official from receiving “any benefit that may arise” from the agreement, according to Matt Schoonover, a lawyer at Koprince Law, which focuses on federal government procurement.
“That’s very broad,” Schoonover said. “Where does this benefit begin? Where does this benefit stop?”
In the most extreme case, the GSA could treat Trump’s taking office as “a non-monetary breach of the lease,” which would allow the agency to terminate the agreement and start the bidding process again, Schoonover said. “I certainly don’t envy the contracting officer or the contracting officer’s boss.”
It’s unclear how much the public would be able to learn about the details of any sale. An agreement with the government would likely be made public, but the financial details might be redacted before release. If the contracts included details of any money that third parties paid to Trump as incentive or to help him recoup renovation costs, those would likely be kept private, raising fresh questions.
“All of the possible solutions are sticky,” said Schoonover. “There’s not really a clean way out of this for anybody.”