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WASHINGTON, DC-The Watergate Hotel was the origin of the scandal that eventually brought down the Nixon Administration in the 1970s; today, however it is just another commercial property in default–and one that apparently nobody wants.

The much-anticipated auction of the Watergate Hotel ended on a flat note Tuesday with no bidders making a play for the asset. Registered bidders for the auction, held by Alex Cooper Auctioneers, included hotel chains and developers. As is the case in such situations, it was taken back by PB Capital Corp., which holds the $44.3 million loan.

Monument Realty acquired the hotel in 2004; it has been shut for at least that time frame. Besides the outstanding note, a bidder would have also been on the hook for necessary capital improvements that have been reported to be extensive.

It is not surprising that there wasn’t a bidder, David Furman, an attorney with Gibson Dunn & Crutcher tells GlobeSt.com. “Lenders usually win in these kinds of auctions because they have [the] ability to credit bid the full amount of their loan.” He is referring to the rights of the lenders in most loan’s terms and conditions that allows them to avoid putting up cash at the foreclosure sale; third party bidders by contrast have to put up cash usually.

“There is usually a negotiated settlement before or after the auction,” he explains. “It is rare that there is an upset at a foreclosure sale.”

More notable about this deal is that it is perhaps a harbinger of things to come for the commercial real estate industry, Furman suggests. “The pace of commercial defaults seems to be increasing and that will precipitate distress deals. The hotel industry specifically, in fact, is experiencing a dramatic downturn, according to Daniel Lesser, senior managing director of CB Richard Ellis’ hospitality and gaming group, told GlobeSt.TV. Hotels “are very sensitive to rapid changes in the economy–and the hotel business has been dramatically impacted in this recession.”

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