The meeting between King Abdulaziz bin Abdul Rahman Al Saud and President Roosevelt on board the USS Quincy was memorialized in an official memorandum which both the King and the President signed off on. The State Department has a copy of it here. At the very least, this document demonstrates what the participants were contemporaneously comfortable stating what occurred at the meeting.

There is no mention of Bavaria. Instead, we have this exchange:

The President asked His Majesty for his advice regarding the problem of Jewish refugees driven from their homes in Europe. His Majesty replied that in his opinion the Jews should return to live in the lands from which they were driven. The Jews whose homes were completely destroyed and who have no chance of livelihood in their homelands should be given living space in the Axis countries which oppressed them. The President remarked that Poland might be considered a case in point. The Germans appear to have killed three million Polish Jews, by which count there should be space in Poland for the resettlement of many homeless Jews.

So where does Riedel's mention of Bavaria originate from? In Riedel's book Kings and Presidents, he describes the meeting at more length than in his article. Riedel quotes the King as stating: "It is the Christian Germans who stole their homes and lives. Let the Germans pay. ... Give them [the Jewish survivors] and their descendants the choicest lands and homes of the Germans who oppressed them."

Given that Riedel does not mention the King suggesting that a Jewish homeland be set up in Bavaria in his more comprehensive account of the meeting, the use of "Bavaria" appears to be synecdoche for choice land in Germany and the Axis countries.