A major hotel chain in San Francisco is packing it in and has stopped making payments on two hotels in the downtown area, just walking away, claiming the streets are no longer safe and voicing major concerns over the city’s ability to recover.
(Video Credit: ABC7 News Bay Area)
This isn’t just any hotel chain. It’s one of the largest publicly traded real estate investment trusts in the US. Park Hotels & Resorts Inc. announced this week that it is halting payments on a $725 million loan that secured both its 1,921-room Hilton San Francisco Union Square and 1,024-room Parc 55 San Francisco properties citing “major challenges” in the City by the Bay, according to Fox Business.
According to a news release, Park “intends to work in good faith with the loan’s servicers to determine the most effective path forward, which is expected to result in ultimate removal of these hotels from its portfolio.”
“This past week we made the very difficult, but necessary decision to stop debt service payments on our San Francisco CMBS loan,” Park Hotels CEO Thomas J. Baltimore Jr. proclaimed in a statement. “After much thought and consideration, we believe it is in the best interest for Park’s stockholders to materially reduce our current exposure to the San Francisco market.”
“Now more than ever, we believe San Francisco’s path to recovery remains clouded and elongated by major challenges — both old and new: record high office vacancy; concerns over street conditions; lower return to office than peer cities; and a weaker than expected citywide convention calendar through 2027 that will negatively impact business and leisure demand and will likely significantly reduce compression in the city for the foreseeable future,” Baltimore added.
Yes, @nytimes, I’m sure it was “the pandemic.” Luckily no one else had “the pandemic.”
<<Park Hotels & Resorts said it stopped making payments on a $725 million loan tied to two prominent hotels in a city hit hard by pandemic-related changes.>>https://t.co/WPa6pV5oyO
— Ann Coulter (@AnnCoulter) June 6, 2023
— ❌Sharon ❌Frohberg❌ (@SharonMarietta) June 7, 2023
Park Hotels noted in its June investor presentation that “ongoing concerns over safety and security” were a central part of its rationale for giving up on the two prominent San Francisco hotels. The move will reportedly save $30 million a year in interest payments and some $200 million in maintenance expenses over the next five years.
Park operates 46 hotels and resorts mostly located in city centers and resort locations. That includes the New York Hilton Midtown, the Hyatt Regency in Boston, the Hilton Hawaiian Village Waikiki Beach Resort in Honolulu, and the Orlando Waldorf Astoria in Orlando, Florida.
Romy Bhojwani, who is the director of hospitality market analytics in the US at CoStar, said in an email interview that Park’s decision to stop debt service payments on its two San Francisco hotels is somewhat of an anomaly, as there have been only a few instances of a publicly traded hotel walking away from assets during and post-pandemic.
He also noted that these hotels had a material negative impact on Park’s operational results at the portfolio level as well as on its balance sheet.
Park Hotels explaining why they stopped paying their loans on two San Francisco Hotels:
“San Francisco is a toxic wasteland that is in terminal decline.”
— Wall Street Silver (@WallStreetSilv) June 6, 2023
Park Hotels & Resorts Inc. is voluntarily defaulting on a $725 million loan for two of its hotels.
Citing the fact that San Francisco is a dump and there’s no path for it to improve.
US commercial real estate is spiraling around the drain — especially in big cities. pic.twitter.com/PU33eBiY3o
— Joe Consorti ⚡ (@JoeConsorti) June 6, 2023
“The positives of removal of these properties from Park’s portfolio is that it reduces the company’s net debt/earnings before interest, taxes, depreciation, and amortization ratio,” he pointed out. “It also removes substantial [capital expenditure] requirements associated with these two hotels — approximately $200 million over five years in [capital expenditure] needs. And it frees up cash flow to potentially pay out a dividend to investors.”
Bhojwani also said that San Francisco’s hotel market recovery has been “among the most challenged across major urban markets, with revenue per available room still down 20% compared to 2019.”
“The market outlook remains negative given high exposure to the tech sector, low office utilization, and societal perception issues — all of which are expected to elongate recovery,” he stated. “The outlook for 2024 is particularly concerning, with just 456,000 definite room nights on the books in 2024 compared to 672,000 convention room nights in 2023.”
Another California CRE loan has defaulted. This time it’s not an office, but a hotel. Park Hotels blames office vacancies, rising street crime and other “conditions” and weak convention calendar. Another bad sign for US office and big city economics. $PK @SFGate @REITs_Nareit… pic.twitter.com/1EfBnjPk8f
— Markets, News & Charts ✝️ (@markets1100) June 8, 2023
This is just the latest blow to San Francisco as major businesses flee the city which more and more resembles an apocalyptic nightmare. Retail theft, homelessness, and massive drug use are not conducive to business.
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