As Raoul Thomas clung to hope that he would recapitalize his $285 million loan on the Waldorf Astoria Washington DC in time to avoid losing the hotel, the financier got tired of waiting.
Lender BDT & MSD Partners foreclosed last month after postponing the auction by 45 days to give Thomas time to cure his default.
The historic 263-room property in the Old Post Office building, previously the Trump International Hotel, is both the boon and bane of Thomas’ career.
In 2022, he made a splash with his $375 million purchase of the building’s leasehold from the Trump Organization. The deal propelled his firm into national headlines, marking his foray into real estate’s big leagues. Before then, Thomas’ Miami-based real estate investment firm, CGI Merchant Group, had a reputation restricted to South Florida. Its portfolio consists primarily of office buildings, as well as two hotels, the Gabriel Downtown Miami and Gabriel South Beach.
Just when Thomas closed on the Washington, D.C., hotel, and started rebranding it as a Waldorf Astoria, the Federal Reserve commenced its 11 aggressive interest rate hikes. As CGI’s interest payments increased, it got hit with a $35.4 million bill for transfer taxes from the District of Columbia, more than the $9 million maximum the firm had anticipated. The levy ate up the firm’s roughly $40 million reserve fund for the property.
“I look back at it,” said Thomas, 54, “as the beginning of a perfect storm.”
Now, it’s a superstorm. On Aug. 5, the day it lost the Waldorf Astoria, CGI also lost the Gabriel Downtown Miami in a separate foreclosure. The Gabriel South Beach heads to a foreclosure auction this month.
Thomas has been fighting all year long. Before losing two of his hotels, he maintained he was working to recapitalize with the help of equity partners. After the auctions, Thomas said he is fighting to take back the properties and his drive is even stronger.
It’s an ambitious goal, as it’s a long shot for a borrower to regain title of a property after losing it in foreclosure.
And CGI has high exposure to offices, an asset class with questionable viability, and a history of allegedly unpaid bills at other properties.
Thomas’ plight is a common one. After two turbulent years, marked by more expensive financing, skittish debt and equity, property devaluations and, in Florida’s case, skyrocketing insurance premiums, investors are struggling but hoping for a reprieve from rate cuts. Whether a market turnaround comes or financial woes continue for the industry — and Thomas — is yet to be determined.
“I don’t know the outcome,” Thomas said. “But I have to believe it will go in my favor.”
All roads lead to real estate
When Thomas was a young entrepreneur trying to figure out his calling, he researched tycoons and found a common thread: Many built their wealth in real estate.
“I was really enamored by that and saw it to be my path,” he said.
It’s difficult for Thomas to explain who he is without first talking about his parents.
Born in Jamaica to Guyanese parents, he grew up in Canada as well as various countries in Africa and Latin America due to his father’s job as an economist and academic.
“I look back at it as the beginning of a perfect storm.”
RAOUL THOMAS, CGI
Both of his parents’ careers had an underlying theme of empowering the disadvantaged. His father, Clive Thomas, did it through his work on closing the gap between rich and poor, and his late mother, Alice Miller, who was of Portuguese and Afro-Guyanese origin, through her work running her family’s large real estate holdings in Kenya. There, she developed dormitories and schools adjacent to women’s prisons, which allowed inmates’ children to stay close to their mothers without living in the prisons.
Until then, “you would go to prisons and you would see kids that are 6, 7 years old behind the bars,” Thomas said. “My mom was a charismatic, beautiful, very entrepreneurial [and] spirited woman.”
From 1995 to 2005, Thomas had a stint as a government bank regulator in Miami, and then worked at two banks and the Caribbean acquisitions arm of Michael Lee-Chin’s AIC Limited.
He launched CGI in 2006, and seized on housing market distress by buying about 3,000 underwater loans on Florida and Georgia homes at a steep discount from their face value of around $700 million.
Much of his work is about giving back to minorities, including committing 3 percent of one of CGI funds’ general partner’s earnings to communities of color, Thomas said. In Atlanta, CGI plans a 150-key hotel at the historically Black Morris Brown College, which has a hospitality management training program.
CGI’s investors include wealthy Canadian families and professional athletes. Since 2016, the firm has set up at least five funds in Canada to raise money for real estate investments in the U.S., according to records. Among CGI’s most famous investors are retired Yankees third baseman Alex Rodriguez and boxer Floyd Mayweather.
In South Florida, CGI has amassed 1.2 million square feet of commercial space. In Coral Gables, the firm bought the commercial space at the Ten Aragon condo at 55 Miracle Mile for $26.8 million in 2013, as well as the 15-story 550 Biltmore Way office building for $54.4 million in 2019. The firm also owns offices in Boca Raton, Boynton Beach, West Palm Beach, Wellington and Stuart, where CGI’s Nexus Workspaces has co-working spaces.
The Coral Gables buildings and the Nexus portfolio are over 90 percent occupied, according to CGI.
In 2020, CGI established a $650 million hotel investment fund, with Rodriguez among the main investors. The fund is meant to target smaller “lifestyle” hotels, like the 132-key Gabriel South Beach, which it bought in 2021 for $108.6 million. It isn’t meant to target marquee properties like his D.C. hotel.
But Thomas had to have it.
Debts on debts
“There are very, very old black and white photographs [in the hotel] that show the land before the building and people of color, people who look like me, who lived there,” Thomas said. “They were displaced and then brought back to build that asset. … Lives were lost in doing so. And wages were not properly paid. … There was a connection for me.”
The $375 million CGI’s hotel fund paid was tens of millions dollars more than the other offers, the Wall Street Journal reported.
“He paid what was necessary,” real estate developer and investor Don Peebles countered. “That hotel happened to be on Pennsylvania Avenue, America’s most important and most famous street, in the landmark [Old] Post Office Pavilion in the nation’s capital of the most powerful nation in the world and arguably physically the best hotel in the city. … If there is a trophy asset, that is it.”
Aside from his hotels’ debt troubles, Thomas has been the target of lawsuits over unpaid bills.
The 129-key Gabriel Downtown Miami occupies the first 14 floors of the 67-story Marquis. There are also 292 condos, plus valet and housekeeping services, which sued CGI this year alleging nearly $661,413 and $18,378 in unpaid invoices, respectively, records show. Last year, a security service provider sued CGI, saying it owed more than $37,000 in unpaid invoices. Although Miami-Dade records show the suits as pending, CGI said it has paid its dues and settled the claims.
“Everything I have gone through the last two years is for a reason. I don’t doubt the story is yet to be told.”
RAOUL THOMAS, CGI
At 55 Miracle Mile, the Ten Aragon condo association has filed liens against CGI for more than $184,700 in unpaid property maintenance assessments since last year, according to records.
Although the economic slowdown is affecting landlords across the board, “it’s ironic that the attention goes more to me than anyone else,” Thomas said.
The Gabriel South Beach auction, tied to a $71.1 million Deutsche Bank loan and originally scheduled for May, is now expected on Sept. 12.
Thomas said he’s confident that CGI will have a solution to the issue before then. “We have a strong moral and fiduciary responsibility to our lender and investors to imminently resolve our financial obligation to this lender,” he said.
Prior to the Waldorf Astoria auction, BDT & MSD knew that CGI had secured the “necessary financing to cure the loan default,” but opted to proceed with foreclosing, Thomas said, adding that his firm continues to “tirelessly work” toward a solution.
“We never walk away from a property — and we are not done fighting for the Waldorf Astoria,” he said.
As for the Gabriel Downtown Miami, CGI said it is working with a “key partner” to reach an “amicable financial settlement” with lender Madison Realty Capital to “repurchase the outstanding loan balance and regain title.”
The worst of times, the best of times
Because the Gabriel Downtown Miami was lost in a Uniform Commercial Code foreclosure, CGI can reacquire it by paying off the outstanding debt, said Boaz Ashbel, a hospitality expert at Miami-based Aztec Group.
But “once a UCC sale closes, I cannot remember a case where ownership reverted back to the borrower,” he said. It’s also not easy to reacquire a property lost in a judicial foreclosure, like the Waldorf Astoria, Ashbel added.
Boaz, who has been following CGI’s Miami-Dade hotel investments, said the firm overpaid for the hotels and invested “too heavily” in them.
The Gabriel Downtown Miami was rebranded from Casa Moderna to ME by Meliá and then to Gabriel. “This is not the formula for success in the hotel business. It involves additional cost and resets the property from a market positioning and a marketing point of view,” Ashbel said.
The market may not bode well for CGI. Although Miami revenue per available room, a metric of hotels’ performance, is up 15 percent this year compared with 2019, it is down 10 percent when accounting for inflation, according to Michael Stathokostopoulos, a hospitality analyst at CoStar.
Peebles said that if the hotels have any performance issues, then it’s notable that Hilton, and not CGI, is the properties’ manager. The Peebles Corporation CEO, who knows Thomas personally, described him as “thoughtful” and “committed to his family,” and often referred to him as “spiritual.”
In an interview, Thomas outlined his life philosophy: The outcome of things, including his debt woes, is based on 99 percent his own effort and 1 percent he leaves “to a higher cause, a spiritual being.” “Call it God, call it whomever you want,” he said.
According to Peebles, people of color who choose to stay in real estate do it in pursuit of a higher purpose, as they quickly find out the industry hardly is a meritocracy and odds are often stacked against them. “I see Raoul as fighting to change that and fighting against that. … It takes somebody with a bigger purpose,” he said.
It’s odd that the Waldorf Astoria lender foreclosed on the property, as others work with borrowers to grant them forbearance on underperforming properties, Peebles said.
“Why Raoul? Is it because he is not a member of the club?” he questioned.
Thomas’ troubles mark the toughest time in his career, but they’re something he wouldn’t trade.
“CEOs are not born. They are made. The best ones are made at the hardest times,” he said. “Everything I have gone through the last two years is for a reason. I don’t doubt the story is yet to be told.”