When Donald Trump offered to spend $200 million overhauling one of Washington's most treasured historic buildings into a luxury hotel a decade ago, competitors and critics scoffed.
Trump, they asserted, could never operate a hotel profitably after paying so much.
It turns out they were right. The hotel posted millions in losses over four years, according to financial documents Trump's company provided to the government and released by the House Oversight Committee in October.
But the former president's company recently signed a contract to sell its lease of the historic Old Post Office Pavilion to Miami-based investment firm CGI Merchant, which hopes to turn the property into a Waldorf Astoria in partnership with Hilton Worldwide, according to three people familiar with the arrangement who spoke on the condition of anonymity to share details of the transaction. One of the people said the price was $375 million, which would eclipse the previous record for hotel sales in Washington.
Experts say that price would also net Trump a hefty profit, probably $100 million or more, based on the financial documents and the company's lease with the government. That would provide Trump with a rate of return that many hedge fund managers would envy, thanks to a market that is snapping up hotels in the expectation that the pandemic will wane and travel will roar back.
"Hotels are hot. Even in cities that aren't doing so well, people are paying robust prices for hotels," said Suzanne Mellen of the financial firm HVS. "We are seeing extraordinary pricing."
"I assume every global luxury chain has taken an interest in this property," said Michael Bellisario of the Baird financial company.
Spokespeople for the Trump Organization, CGI Merchant and Hilton declined to comment.
There is no indication that politics played a role in the offer by CGI Merchant and its chief executive and founder, Raoul Thomas. Experts say that the price, while high, is plausible on business grounds, but some wondered how CGI will be able to turn a profit after paying such a high price.
Hotels are priced on a per-room, or "per-key," basis. In Washington the high water mark came in 2016, when the Capella Hotel Georgetown - now the Rosewood hotel -- sold for about $1.3 million per key, according to industry data. At $375 million for 263 guest rooms, the proposed Trump sale would come to about $1.43 million per key, 10% higher than the Capella sale.
Hotel brokers said the historic nature of the 122-year-old-building, the scarcity of five-star hotels in Washington and the location on Pennsylvania Avenue -- a backdrop for the presidential inaugural parade every four years -- probably drove up the price.
"How often do you have a hotel built the way that hotel was built?" said Dan Hawkins of Berkadia Real Estate Advisors. "Pure granite. Ideally positioned between the White House and the Capitol."
If the deal closes, Trump will have fared far better than expected when he won the deal from the General Services Administration almost a decade ago, when the government sought private companies to redevelop the building from a government office building, food court and failed shopping mall.
In selecting Trump for the project, the government overlooked his past bankruptcies, business litigation and false claims about President Barack Obama's birthplace. His company agreed to spend $200 million to rehabilitate the building, and Trump ultimately spent $217 million on the project -- $194 million redeveloping the building and $23 million on furniture, supplies and build-out for the retail space, according to the financial statements. His company provided the hotel with millions more to keep the property afloat while it was losing money, according to the statements.
Should he complete the sale, Trump would have to repay Deutsche Bank $170 million he borrowed to build the project. On top of the $3 million he has been paying the GSA annually in base rent, the lease stipulates that Trump pay a small share of the purchase price to GSA, probably less than $10 million. The provision says that if the Trump Organization achieves an annual return of 20% with a sale, the GSA gets 15% of any remaining proceeds beyond that level.
That leaves more than $100 million in potential profits for Trump when he signs away the property -- one that came to symbolize his willingness to mix politics with business in ways no other president has, leading to numerous legal and ethical brawls with Democrats and government watchdogs.
The hotel opened nearly in sync with Trump's election win in 2016 and started off with a bang, when it was able to charge sky-high rates for its rooms during Trump's inauguration. Early on, the hotel booked a number of embassy events, landing Trump tens of millions in foreign payments, and hosted foreign leaders when they traveled to Washington meet with him. Members of his Cabinet, and later his attorney Rudolph W. Giuliani, stayed there routinely.
Despite the decision by Trump's company to donate profits from foreign governments to the U.S. treasury and not to market to embassies, one controversy after another dogged the property. The D.C. attorney general sued over the Trump inaugural committee's use of the hotel, in a case that is ongoing.
Lawsuits over whether Trump could accept payments from foreign governments dragged on for years. Giuliani's efforts to pressure Ukraine for political favors, conducted largely from the hotel, led to Trump's second impeachment.
Trump and his family criticized the disputes as politically motivated attacks on him and his presidency, while critics said he should have sold his business before he entered the White House.
The bet by CGI Merchant and Hilton is that once the name "Trump" comes off the building, the Waldorf brand will attract more customers at higher room rates. Hilton has Waldorf locations in some of the world's most prestigious locations but does not have one in Washington, despite Hilton's headquarters being in McLean, Va., and chief executive Christopher J. Nassetta having grown up in Arlington, Va.
"If there wasn't the politics issue, that property would have operated very well," said Marc Magazine of the real estate firm Savills. "Is it a sure bet? I wouldn't say that. It's a lot of money. But I do think in a few years, when you are out of the pandemic, there is going to be room to push up rates on five-star hotels."