Despite the fact that the auctioneers claimed to have calls from interested investors all over the world, not one of those folks decided to raise a hand at the Watergate Hotel auction.
PB Capital, which holds the $40 million loan on the property set the opening bid at $25 million, and that was that.
Not a word.
Back to PB Capital.
Now we all know that the Watergateis probably the most famous address in our nation's capital, next to 1600 Pennsylvania Avenue, perhaps even more famous. But what happened in a small attorney's office this morning where more media than bidders crammed in for the auction, says more about the state of commercial real estatethan it does about the famous, albeit rundown, hotel.
Financing is next to nil for commercial development projects, and even good commercial loans are having trouble getting necessary refinancing. Fed Chairman Ben Bernankedidn't mince words this morning on the subject:
"As the recession has gotten worse in the last 6 months or so, we're seeing increased vacancies, declining rents, falling prices, and so more pressure on commercial real estate, which is raising the risk of lending to commercial real estate. So that is certainly a negative, and as I was mentioning to the chairman, the facilities for refinancing commercial real estate, either through banks or through the commercial mortgage backed security market, seem more limited. So we are somewhat concerned about that sector, and we are paying very close attention to it. We are taking the steps we can through the banking system and through the securitization markets to try to address it."
I guess that's supposed to make me feel better, but it doesn't really.
If nobody in the whole world is willing to step up to buy a trophy property at almost half the price it sold for just 5 years ago, then that says confidence in the near future of commercial real estate is zero. Granted, this property would cost about $100 million to renovate, but in today's newly fashionable hot city, how is this not a steal for an investment group? DC hotels are actually holding up pretty well in comparison to other cities, so, again, it's all in the financing.
But come on people, think long term!
Questions? Comments? RealtyCheck@cnbc.com