Michael Darby and the board of Watergate East eventually settled on a sale price of the parking lots and other property beneath the hotel, at a price of about $250,000—$4 million below his original offer. With a permit in hand from the District Zoning Commission to convert the hotel to residences, he obtained a $69.8 million construction loan from PB Capital, a subsidiary of Deutsche Postbank AG.
Darby announced the Watergate Hotel would close for an eighteen-month, $170 million renovation. Once reopened, he said, the Watergate would be “probably higher-end than any other hotel in Washington.” Rooms in the refurbished hotel, he said, would go for up to $2,000 a night. The Watergate name would remain. “It’s too good a name to change,” Darby said.
Under union rules, the hotel was required to give employees a sixty-day notice before closing. Klaus Peters, the manager of the hotel, later observed there are two “incredibly tough times” in the life of any hotel: when it opens, and when it closes. “Usually the final 60 days is chaos,” he said. “But the Watergate Hotel staff was absolutely perfect.”
The last guests were served their continental breakfasts and checked out. There was a small, emotional party for the last few members of the staff. A typed note, on hotel stationery, was taped to the front door: “We apologize for the inconvenience. But as of August 1, 2007, the Watergate Hotel is closed for renovation.”
The hotel’s closure was “devastating” for the other businesses at the Watergate, recalled Anton Obernberger, owner of Watergate Pastry. There was so much media interest in the closing of the hotel, the public thought the entire Watergate was shuttered. Business at Watergate Pastry dropped 50 percent. For years, people would call him up and asked if he was still open for business. “We heard the Watergate was closed,” one caller said. “But your website is still up.”
“Yes, we’re open,” he sighed.
Saks Jandel, a family-run clothing store that had operated on the first floor of Watergate East, shut its doors following the closures of Colette of Watergate, a women’s clothing store, and a Gucci boutique. The closure in turn reduced business at the Watergate Salon, which was in the hands of Claudia Buttaro, the second generation of the Buttaro family to run the salon. As business dropped off, some of her staff moved on. “The hairdressers wanted to go where it’s a hip and happening place,” she said, as a stylist nearby trimmed an elderly client’s hair under the watchful eye of a caregiver.
“The Watergate is not a destination for shoppers the way it used to be,” reported the Washington Post. “All you need to do is walk around Watergate to see it needs renovation,” said a local real estate agent.
“Forget clothes,” said a resident. “One wonders why there aren’t bookstores and video rentals. You don’t have to be an Einstein to see that.”
Business dropped off at the Watergate Safeway, which became known around Washington as the “Senior Safeway.” Within a few years, despite a furious signature-gathering effort by Watergate residents, Safeway shut down its Watergate location.
“It’s not the same as when I moved in,” said one resident. “The mall is like a ghost town. It used to be so elegant.”
BentleyForbes, the California-based owner of the Watergate Office Building, sued Monument Realty for failing to maintain its garage, which was above the part of the garage owned by BentleyForbes. Slabs of concrete became loose and fell onto the garage floor. Within a few years, BentleyForbes—named by its founder, C. Frederick Wehba, because it “sounded prominent and blue-blooded”—would forfeit the office building to one of its lenders.
Tenants started leaving the Watergate Office Building on Virginia Avenue. The departure of the Saudi Arabian Cultural Mission was difficult for Phil Rascona, the owner of the Watergate Barber Shop—another second-generation Watergate business. The Saudi ambassador, Rascona said, always sent “long-haired students down for grooming.” Former senator Bob Dole stopped coming to the Watergate Barber Shop as well, but for another reason. “He colors his hair and goes to a salon now.” Rascona shrugged. “He wants to look 70.”
NATIONAL CONTENT LIQUIDATORS, ALSO KNOWN AS NCL, specialized in liquidating hotels, prior to their demolition or renovation, including the Willard in Washington, DC, and a number of hotels in Las Vegas, including the Dunes, the Sahara and the Aladdin. Don Hayes got his start in the business at age fifteen, accompanying the president of the company on auctions. By the time he turned forty, Hayes was president of the firm.
Hayes managed the liquidation of the Commodore Hotel in New York in 1978. He met the hotel’s new owner, Donald J. Trump, in the former New York New York restaurant to go over plans for the auction. But Trump did not want to discuss the auction: He wanted Hayes’s opinion on the glass samples he was considering for the exterior of the building. NCL liquidated several hotels for Trump. There was never a problem getting paid, Hayes recalled. “We paid him.”
The NCL sales team heard about the Watergate renovation, reached out to the managers there and got the job. The first step was to do an appraisal. Hayes and Klaus Peters, the hotel manager, walked through every room in the hotel, conducting a “head to toe” inspection. Hayes prepared an inventory and began marketing the sale.
As Labor Day weekend approached, NCL turned the Watergate into a department store. In the hotel ballroom, they set up a “boutique” to sell higher-priced items, like paintings, silver and glassware. Some items were staged in the lobby. Suites 214 and 314, where the Watergate burglars stayed the night of the break-in, were staged as sales rooms, with prices attached to mattresses and furnishings.
In total, more than twenty thousand items were for sale, including silver, china, glassware, gold-framed mirrors, a baby grand piano, thirteen “Grecian-style columns” and a fleet of Sony Dream Machines. Martini glasses were priced at $2 each, wooden desks from the suites at $85. Frying pans from the hotel kitchen? Six dollars.
Hayes later recalled there was one big problem with this particular sale: the lack of branded Watergate items. When NCL had liquidated the Plaza Hotel in New York, there was a wealth of Plaza-branded towels, ashtrays and the like. But because the Watergate Hotel had mostly done away with branded items following the 1972 break-in, there was virtually nothing available for sale bearing the name “Watergate.” Moreover, because the hotel suites and public areas had been renovated several times since the mid-1970s, there were virtually no relics from the Nixon era.
The ornate W on a glass door was priced at $750, while silver teapots with a W engraved on the side were $55 apiece.
Michael Darby fielded calls from all over the world about the liquidation sale. Klaus Peters gave interviews as well: His brother heard him on the radio, while hiking in Switzerland. “This must be the most media attention we have had since the scandal,” said Peters. “But this time, the coverage is positive.”
On the first day of the sale, to discourage sightseers, shoppers were charged a $10 admission fee. The public was let into the lobby fifty at a time. Customers could go into any room and pick out an item, go downstairs to the lobby to pay for it and then return upstairs to carry it out themselves. The baby grand piano sold for $7,500. A nineteenth-century oil painting in the lobby sold for $12,000. David Urso, a former Secret Service agent, bought the sign down the hall from where the burglars camped out in preparation for their foray into the Watergate Office Building next door.
The entire liquidation took about a month. The last unsold items were dispersed to local charities. Broken items went into the Dumpster. The sale was projected to bring in $700,000, but total receipts exceeded $1 million.
As Hayes and his team left the hotel, he recalled years later, “there was nothing left in the building but an echo.”
ON JULY 24, 2008, THE DC COURT OF APPEALS RULED Monument Realty had the legal right to convert the hotel to condominiums, clearing away the final lawsuit filed by Jack Olender and his allies at Watergate East who opposed the conversion. “We recognize that the petitioners feel very strongly about changes to the Waterg
ate complex and that there may be substantial evidence supporting some of their factual arguments,” John R. Fisher, an appointee of President George W. Bush, wrote in a unanimous opinion. “However, applying our standard of review to the record at the time of the hearing, we conclude that the Commission’s order is clearly supported by substantial evidence.”
Darby’s victory was a long time coming, but he found no reason to celebrate. “We weren’t going to wait forever,” he said, “and so we moved in a different direction.”
Four weeks later, on Monday, September 15, 2008, Lehman Brothers declared bankruptcy.
“I will remember that day until I die,” Darby recalled.
He and his team knew something was wrong at Lehman Brothers, their partners in twenty-six different projects around Washington, a portfolio worth $2.6 billion. “You could feel it,” Darby said. As the price of Lehman’s shares fell, senior executives worried more about their underwater stock options than real estate projects in the pipeline. Darby’s top contact at Lehman Brothers quit and went to work for someone else. A couple of joint projects had to be canceled after Lehman executives balked about committing any more cash to new ventures.
On Sunday night, September 14, 2008, at around ten-thirty, the board of directors of Lehman Brothers called Bryan Marsal, head of the restructuring firm Alvarez & Marsal, and asked him to take responsibility for winding down Lehman Brothers, which would declare bankrupty the next morning.
“How much planning has gone into the bankruptcy?” Marsal asked.
“This phone call is the first planning we’ve done,” said a Lehman Brothers director.
Lehman Brothers declared bankruptcy the next morning. Darby, sitting in his office, answered the phone. It was a friend from Lehman Brothers. “It’s over,” the caller said.
Alvarez & Marsal took over the management of the Lehman Brothers assets, including a global real estate portfolio worth $23 billion, with both secured and unsecured loans, and equity investments in a range of projects at various stages of development.
“Since the bankruptcy announcement, Monument has been working closely with Lehman to ensure that its properties are properly funded and managed in order to maintain the value of these assets,” Darby said in a statement on September 21. “Monument remains committed to its projects and is ready to move forward with the development of these properties with Lehman or a new partner.”
A few days before Christmas 2008, Darby got a tip from a friend who still worked at Lehman Brothers. “They want to shut you down,” the friend said. “They want to take every asset away from you and shut you down.”
“It was just a nightmare,” Darby recalled.
Lenders called Darby day and night, asking him for information he did not have. They couldn’t reach anyone at Lehman, so they called Darby. “We couldn’t tell them anything,” Darby said. “No one knew what was going on.”
In the months leading up to its collapse, Lehman had sold loans to various entities around the world, secured by various assets, including Monument Realty projects in which Lehman had taken an equity stake. Darby started getting calls from investors around the world—including banks in Bermuda and Holland—identifying themselves as the new owners of a Monument project and asking to come to Washington to tour their new assets. Darby explained these were not assets that were generating cash, but real estate projects in various stages of development. Several investors threatened to declare the loans in default and seize the projects. Darby patiently sat down with each of them, one by one, and worked out plans to create value out of each project and service their loans.
Darby approached PB Capital, who had backed a construction loan for the Watergate Hotel conversion. “I’d like to keep the Watergate,” he told them. “I’d like to put it back and give it another shot.”
A year after Lehman Brothers collapsed in the largest bankruptcy in U.S. history, Michael Darby told the Washington Post he was still committed to the Watergate. Monument was working with PB Capital to restructure the loan and bring in new investors so the renovations could proceed. “At the end of the day, it’s a landmark,” said a PB Capital banker. “There are investors with an interest.”
The new investors never appeared.
On July 16, 2009, PB Capital announced Monument was in default and the Watergate Hotel would be sold at auction.
Darby speculated later that PB Capital was concerned the trustees in charge of liquidating Lehman Brothers’ assets would oppose any transaction under which Darby repurchased the Watergate at a steep discount.
“They felt they had no choice,” Darby said. “But there’s always a choice.”
Darby compared the Lehman Brothers bankruptcy to the days he surfed as a young man off the coast of Australia. “It was like being out in the surf,” he said, “and you go over the first wave and you look out into the sea and there’s a bigger wave. And you go, ‘Okay.’ Then you go over that bigger wave and you go to the next wave, and it’s a bigger wave.”
For two years, he said, “the waves never got smaller.”
PB Capital retained David Astrove, a lawyer with a Washington firm, to supervise the auction. Astrove reached out to Alex Cooper Auctioneers and its president, Paul Cooper. It was a family business: Paul had been working there since he was twenty, alongside his father and brothers. The firm was started by Paul’s grandfather in 1924. The real estate recession was in full swing and Alex Cooper Auctioneers was handling a steady flow of foreclosures.
The first step was to place a public notice in a local newspaper, the Washington Times. Almost immediately, Paul’s phone began to ring off the hook. Reporters speculated the Jumeirah Group of Saudi Arabia could become the Watergate’s new owners. Robert Holland, developer of the Washington Harbour waterfront complex in Georgetown, expressed interest. “At the end of the day, I believe this will be the premiere hotel in Washington,” said Holland. “Eighty percent of the rooms have water views and they’re not great—they’re spectacular.” Holland told the Washington Post he preferred negotiating in private rather than at an auction. He estimated renovations would cost at least $100 million, perhaps as much as $170 million.
Every buyer was flying blind, Darby recalled. “For anybody to understand the complexity of that project” and understand the true cost of renovating the Watergate Hotel “without the information that we had, would have been impossible.”
As the sale date approached, Paul Cooper fielded calls from interested bidders and media around the world.
The auction was held on August 21, 2009, at the offices of Alex Cooper Auctioneers on Wisconsin Avenue, near the Maryland border. It was a hot summer day. The room was packed with reporters, bidders, film crews and a few curiosity seekers. The air-conditioning was failing to keep up. Paul worried that his dad would begin to sweat—like Nixon in the televised debate with John F. Kennedy.
The auction drew ten registered bidders, who were required to bring certified checks for $1 million. Some news outlets inaccurately reported bidding would start at that level. Observers of the local real estate market did not expect the sale price to reach $40 million, the amount Monument owed to PB Capital.
Minutes before the auction was to begin, Astrove took Cooper aside and informed him the opening bid would be set at $25 million. Cooper’s heart sank. He wanted to get people into the auction spirit, competing against each other. A lower opening bid—perhaps as low as $5 million—might fuel the bidding, get “feverish activity” in the room. But Cooper worked for the seller, and had no choice but to follow Astrove’s instructions.
Astrove had another number, known only to him and his client, at which he would stop the bidding and allow the Watergate to be sold. If that number was not reached, PB Capital would step in and submit a pro forma bid and shut down the auction.
At 10:40 A.M., the auction began. There was a sixteen-page terms of sale—thirteen of which were “meets and bounds”—the geographical designation of the property line, all numbers and degrees. As
required by law, various members of the Cooper family took turns over the next thirty minutes, reading every word of the terms of sale.
At eleven-thirty, Joseph Cooper, Paul’s father, approached the podium and started the auction. He called six times for an opening bid at $25 million.
No one in the room raised a paddle.
“It’s a Washington landmark,” he pleaded. “It’s a national landmark, really.”
David Astrove finally stood up and signaled to Paul Cooper and his father to follow him into a glassed-in office, just behind the podium. Astrove informed them PB Capital would submit a pro forma bid of $25 million, take the Watergate Hotel off the market and conclude the auction.
Everyone filed back into the room. Joseph Cooper asked once more for a bid of $25 million. Astrove nodded in response.
“Sold,” said Cooper.
The auction was over.
Epilogue
IN THE SUMMER OF 1980, MARGARET TRUMAN, DAUGHTER OF the thirty-third president, released her first novel, Murder in the White House. The story took place during the administration of the fictitious Robert Webster, sometime after the presidency of Jimmy Carter. Webster’s secretary of state Lansard Blaine was found in the Lincoln Bedroom, strangled by a guitar string. Prior to meeting his demise, Blaine’s life “was one long orgy with various women at his apartment in the Watergate.”
In Truman’s book a character overhears a network news report:
People who live in the Watergate apartment complex probably wish history would keep its distance. The name of their home became a synonym for political chicanery in 1973 and 1974. Now it seems likely to become a synonym for erotic fun and games—even for harem-keeping—by high ranked public officials.
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