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Owner to give up two of San Francisco’s largest hotels

edited June 2023 in Other Investing
Following is a current report from the San Francisco Chronicle. Anyone holding investments in real estate might want to take notice.
Park Hotels & Resorts, the owner of two of San Francisco’s biggest hotels — Hilton San Francisco Union Square and Parc 55 — has stopped mortgage payments and plans to give up the two properties, in another sign of disinvestment in hard-hit downtown.

Park Hotels & Resorts said Monday that it stopped making payments on a $725 million loan due in November and expects the “ultimate removal of these hotels” from its portfolio. The company said it would “work in good faith with the loan’s servicers to determine the most effective path forward.”

The 1,921-room Hilton is the city’s largest hotel and the 1,024-room Parc 55 is the fourth-largest, and together they account for around 9% of the city’s hotel stock. The hotels could potentially be taken over by lenders or sold to a new group as part of the foreclosure process.

“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,” said Thomas Baltimore Jr., CEO of Park Hotels, in a statement.

Those challenges include a record high office vacancy of around 30%, concerns over street conditions, a lower rate of return to office compared to other cities and “a weaker than expected citywide convention calendar through 2027 that will negatively impact business and leisure demand,” he said.

Park Hotels said San Francisco's convention-driven demand is expected to be 40% lower between 2023 and 2027 compared to the pre-pandemic average.

San Francisco Travel, the city’s convention bureau, expects Moscone Center conventions to account for over 670,000 hotel room nights this year, higher than 2018’s 660,868 room nights but far below 2019’s record-high 967,956. And weaker convention attendance is projected for each following year through 2030.

Tourism spending more than doubled in 2022 to $7.4 billion compared to the previous year. A full recovery isn’t expected until 2024 or 2025.

The company expects to save over $200 million in capital expenditures over the next five years after giving up the hotels, and to issue a special dividend to shareholders of $150 million to $175 million. The company's exposure will shift away from San Francisco towards the higher-growth Hawaii market.

Parc 55 is a block from Westfield San Francisco Centre, the mall where Nordstrom is departing, and the block where Banko Brown, an alleged shoplifter, was killed in a shooting outside a Walgreens in April. Nearby blocks are also full of empty storefronts, as tourist and local foot traffic hasn’t fully recovered.

Other hotels have faced financial distress. Atop Nob Hill, the historic Huntington Hotel was sold earlier this year after a mortgage default.

Comments

  • Lenders can just have SF Hilton and SF Park 55. Park Hotels/PK doesn't want to carry them at loss. It's just business - no shame in doing this, and it doesn't matter what company owns which kind of properties.. As posted elsewhere, Blackstone/BX did this for some properties it owned.

    Press Release https://finance.yahoo.com/news/park-hotels-resorts-inc-announces-103000887.html
  • No, certainly no shame. It is most definitely, though, an unpleasant insight into the large-commercial real estate situation in San Francisco and other cities. It's going to be quite a while before all of this sorts itself out.
  • San Fran is all sorted out;)The only thing remaining is for the bell to ring.
  • As I understand this story, they don't even have to declare bankruptcy like SVB. Instead, shareholders realize a special dividend.

    Sweet.

    No doubt there are sound legal principles at work.
  • edited June 2023
    I left my heart in San Fransico.

    My kind of town ... Chicago is.

    Covid seemed particularly hard to San Fransico. Schwab's departure. Many long-time restaurants closed, including some of our favorites like Parma. Hotel Drisco though remains a jewel. And race conflict/riots in Chicago. Citidel's departure.

    Other cities though seem to be thriving ... Austin TX, Portland ME, Boston MA.
  • Charles said:

    I left my heart in San Fransico.

    My kind of town ... Chicago is.

    May be the new Chicago Mayor can use it as a PR tag line!
  • I'd add salt lake city, Miami, to list of booming cities. Can tell you Chicago is going downhill fast...out of control crime... wealthy leaving in droves... businesses moving out... these clowns have ruined a great city...
  • All self-inflicted. Maybe turn them into rooms for transient drug users then no need for vending machines. SF used to be such a great place to visit.
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