The owner of San Francisco's largest hotels is walking away....

[The Tradition]

The owner of the Hilton San Francisco Union Square and Parc 55 hotels in has chosen to stop making payments on $725 million in debt and turn the keys over to their lender, J.P. Morgan Chase.

Park Hotels and Resorts says San Francisco is too much of a mess and won’t be turned around any time soon. According to the ownership group’s CEO,

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.

The Hilton San Francisco Union Square is the city’s largest hotel with 1,921 rooms, and Parc 55 has 1,024 rooms. In 2016 the hotels were appraised for a combined $1.56 billion. The owner is turning over the keys even though they owe less than half that, showing just how far the value of San Francisco properties has fallen. They couldn’t sell the hotels, and couldn’t make the economics work even with the smaller debt load.

The properties remain open for business, but the decision underscores the struggles that San Francisco is going through. In some ways it’s been poorly governed for a century, though many of its problems are far newer. The pandemic made it vulnerable to these problems – people left (whether for LA or other states), and the reason to stay in San Francisco was because of the other people who there there. Work from home and work from anywhere increasingly meant being in San Francisco was no longer the exclusive path to success in tech and adjacent industries. Park Hotels had made a big bet on the city, and now they’re walking away too.

Will this be a wakeup call?

San Francisco Is A Mess, And The Owner Of The City's Largest Hotel Is Just Walking Away - View from the Wing

The owner of the Hilton San Francisco Union Square and Parc 55 hotels in has chosen to stop making payments on $725 million in debt and turn the keys over to their lender, J.P. Morgan Chase. Park Hotels and Resorts says San Francisco is too much of a mess and won’t be turned around any time soon.

viewfromthewing.com

 

[cfbfan23]

Will this be a wakeup call?

For who, the Fed? This scene is going to be repeating itself in blue and red cities around the country. These folks never thought we'd be in this interest-rate environment. They can bitch about the perceived crime and homelessness, but their impact is not material. "Reasonable" refinancing options are just not out there right now.

I'm sure they did a bunch of scenario-analyses before purchasing. I'm guessing their worst-case scenario didn't have interest rates jumping this much in such a short-period of time. Leverage and runaway valuation increases are intoxicating and cause people to do dumb things.

 

[ConvenientParking]

Remember when Americans were talking shit about other Americans pursuing strategic defaults after we bailed the banks out then told everyone underwater to suck it up buttercup and no handouts

 

[Whiskeydeltadeltatango]

Just need to clean a few things up.

 

[BelemNole]

I hope this attempt to bash CA goes better for you than the first one Trad!
But quoting a story from "viewfromthe(right)wing" probably doesn't bode well.

 

[The Tradition]

I hope this attempt to bash CA goes better for you than the first one Trad!
But quoting a story from "viewfromthe(right)wing" probably doesn't bode well.

It's a travel website. Not political.

 

[bhawk24bob]

Cities rise and fall. Tech money came in and threw San Francisco out of whack from its historical norm. Now, the tech money is moving on and San Francisco reverts back to historical norms. Not much to see here imo

 

[The Tradition]

Cities rise and fall. Tech money came in and threw San Francisco out of whack from its historical norm. Now, the tech money is moving on and San Francisco reverts back to historical norms. Not much to see here imo

The historical norm is shoplifting at will?

 

[TC Nole OX]

Orlando is more dangerous than San Francisco

https://www.bestplaces.net/compare-cities/orlando_fl/san_francisco_ca/crime

San Francisco is considerably safer than Miami

https://www.bestplaces.net/crime/?city1=51245025&city2=50667000

 

[The Tradition]

I don't see any major Florida hotel owners tossing the keys to the lender and walking away.

 

[globalhawk]

The historical norm is shoplifting at will?

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.

 

[bhawk24bob]

The historical norm is shoplifting at will?

I’m really not seeing a direct connection between shoplifting and a pair of hotels closing but whatever helps your narrative, I guess

 

[The Tradition]

I’m really not seeing a direct connection between shoplifting and a pair of hotels closing but whatever helps your narrative, I guess

Well, the only reason to stay in a downtown hotel is for restaurants, shows, shopping. You know, the city life.

 

[globalhawk]

Well, the only reason to stay in a downtown hotel is for restaurants, shows, shopping. You know, the city life.

Did you read your own article?

 

[The Tradition]

Did you read your own article?

Yeah, no one is booking conventions in downtown San Fran. Wonder why?

 

[bhawk24bob]

Well, the only reason to stay in a downtown hotel is for restaurants, shows, shopping. You know, the city life.

Or business, conventions, etc. It’s hard to do that when the tech money dries up and/or employees don’t go to the office for a litany of reasons

 

[SF HAWKEYE]

Companies are moving business meetings away from SF. The past two companies I worked for said it's too expensive, and now it's dangerous as well. Too bad. When I moved away I still loved the City. I was back last summer and it's still there but it's a shell of what it used to be.

 

[globalhawk]

Yeah, no one is booking conventions in downtown San Fran. Wonder why?

Please. It doesn't have anything to do with commercial real estate issues that all major cities are having? Again. You need to work on your trolling game.

 

[The Tradition]

Please. It doesn't have anything to do with commercial real estate issues that all major cities are having? Again. You need to work on your trolling game.

Working from home instead of commuting to a downtown office building shouldn't impact high rise hotels much. Those people aren't staying in the hotel.

But if the downtown is a ghost town, you're not going to get leisure travelers or business travelers....

 

[globalhawk]

Working from home instead of commuting into downtown shouldn't impact high rise hotels much.

But if the town is a ghost town, you're not going to get leisure travelers or business travelers....

Holy shits. When less people are downtown for work the hotels will have LESS people.

 

[BelemNole]

Holy shits. When less people are downtown for work the hotels will have LESS people.

Dude, a guy living in a trailer park on the other side of the country understands the ins and outs of SF.

 

[The Tradition]

Holy shits. When less people are downtown for work the hotels will have LESS people.

Which means the city is in its death throes.

 

[globalhawk]

Which means the city is in its death throes.

Shut up. Work on your game.

 

[Titus Andronicus]

The hotel business here (Las Vegas) seems overly healthy to me, a casual observer.

Room rates are through the roof, bookings are seemingly 100% plus and convention attendance is actually trending higher. I am hearing stories of room rates north of $2000 a night for the upcoming Formula One race in November ... so the industry should be good for a bit longer. San Francisco is somewhat of a special case.

Please allow me to assert that San Francisco is seeing declining convention business (and THAT is related to the homeless issue), declining special events business (annual meetings, dog and pony shows, office Christmas parties and so on.) When I worked there, my company held lots of special events in the major hotels, and we had lots and lots of corporate visitors coming in for meetings who stayed for at least one night.

The big prestigious retailers are closing locations right and left which means that out-of-state and international shoppers will not be as plentiful.

Office space in the financial district has suffered from a decline in occupancy to the tune of about 30%.

So demand along with cash flow is in a steep decline and the cost of money is ramping up at warp speed.

Accordingly, the valuations of properties in San Francisco have been in a free fall. The high rise office Building at 350 California Street changed hands five years ago for $300-350 million dollars. It was resold last month for $60 million dollars.

So the owners of the two above-referenced hotels have decided to send in the keys! What were people expecting to happen?

350 California Street.

 

[Titus Andronicus]

I’m really not seeing a direct connection between shoplifting and a pair of hotels closing but whatever helps your narrative, I guess

The shoppers (The ones with cash) come from all over the World and all that they are reading in the papers is either about shoplifting or the needles and feces all over everything. Accordingly fewer of those shoppers are making the trip these days.

 

[LetsGoHawks83]

Those shoppers come from all over the World and all that they are reading in the papers is either about shoplifting or the needles and feces all over everything. Accordingly fewer of those shoppers are making the trip these days.

Article from 2018... Pre pandemic and blaming on the excuse of virtual conferences.

San Francisco's ‘Dirty Streets' Scare Off Long-time Convention with 15,000 attendees

Convention business brings in about $2 billion to San Francisco each year, however, the city’s travel association is finding it harder to convince companies to return because of the amount of trash, feces, and used drug needles scattered throughout the city’s streets and sidewalks.

www.nbcbayarea.com

 

[anon_b29nm7v7dwp6r]

I know the pandemic caused organizations I worked with to completely abandon their conference spending. Decided after a couple years that there wasn’t any real impact on the business if they don’t open up the pocketbooks for these types of events…

Guessing that’s happening all over America. They realized they could pay for more coursework for what they were spending on conference travel.

 

[desihawk]

For who, the Fed? This scene is going to be repeating itself in blue and red cities around the country. These folks never thought we'd be in this interest-rate environment. They can bitch about the perceived crime and homelessness, but their impact is not material. "Reasonable" refinancing options are just not out there right now.

I'm sure they did a bunch of scenario-analyses before purchasing. I'm guessing their worst-case scenario didn't have interest rates jumping this much in such a short-period of time. Leverage and runaway valuation increases are intoxicating and cause people to do dumb things.

not disputing that interest rates rose fast and there are issues arising from that. however in this case, are interest rates an issue? article states they have 50%+ equity and it’s not like they acquired the hotels in the last year, so their loan from chase is likely on pretty good terms interest wise. am i off in thinking their walking away has more to do with poor business prospects than anything else?

 

[cfbfan23]

not disputing that interest rates rose fast and there are issues arising from that. however in this case, are interest rates an issue? article states they have 50%+ equity and it’s not like they acquired the hotels in the last year, so their loan from chase is likely on pretty good terms interest wise. am i off in thinking their walking away has more to do with poor business prospects than anything else?

Nope. They just can’t afford the building. Their annual interest payment is probably their biggest expense. I bet it’s resetting, or already has. Their business model assumed low interest rates. Commercial Real Estate (outside of warehouses and data centers) hasnt exactly been crushing it lately.

San Francisco experienced tremendous property valuation growth from the 90’s on. But was it real? The truth may be the building probably never was worth $1.5b. Don’t get me wrong, crime and a large homeless population aren’t great for business, but this was going to happen anyway. It’s going to be happening a lot more in cities across the country. These guys depend on other people’s money to finance their dreams and business. That easy money has all but dried up.

They’re waking away from this, I bet they wouldn’t have if there were cheaper financing options available. This is a landmark. Someone will want it. You’re going to see a lot of REITS do similar things in the not so distant future. It’s started to happen in L.A. it won’t be long before you see it in Dallas and other places. This kind of stuff happens in real estate. It just needs a purging now.

Some Institutional Investor with deep pockets will end up buying this building on the cheap. This is a good time to have cash. I think the next year or two will be tough., but if you have a long investment horizon, this might be a great buy at the right price. I wouldn’t count San Francisco out.