The investment firm that owns Hilton San Francisco Union Square and Parc 55 San Francisco, two of San Francisco’s largest hotels, has announced it will stop making payments on the properties and will surrender them to its lender.
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Downtown San Francisco has been plagued in recent years by store closings, property crime, and a decline in tourism. Park Hotels & Resorts, owner of the properties, cited those factors and others when it announced it will stop payments on the $725 million loan.
“This past week, we made the very difficult, but necessary decision to stop debt service payments on our San Francisco CMBS loan,” chairman and CEO of Park, Thomas J. Baltimore, Jr., said 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.”
Chief among San Francisco’s challenges cited by Baltimore are what he called “record-high office vacancy” concerns about the conditions of the city’s streets, a low rate of workers returning to offices after the COVID-19 pandemic, and a “weaker than expected” convention calendar through at least the year 2027.
“Now more than ever, we believe San Francisco’s path to recovery remains clouded,” Baltimore continued. “Unfortunately, the continued burden on our operating results and balance sheet is too significant to warrant continuing to subsidize and own these assets.”
Downtown San Francisco
The retail and hospitality sectors of downtown San Francisco have suffered the most in recent years in.
For example, Nordstrom announced last month that it would close both of its stores, while citing the changing “dynamics” of the area, according to CNN. What’s more, data from San Francisco Standard shows at least 20 closures of major stores in the area since 2020, CNN continues.
Secondly, although property crimes are still below the level experienced in 2017, San Francisco experienced a 23 percent rise in property crimes between 2020 and 2022, CNN points out. Most of those crimes were instances of burglary and theft.
Finally, while tourism and the number of conventions planned in San Francisco are both rising, San Francisco Travel, the city’s convention bureau, forecasts weak convention attendance through at least 2030, according to the San Francisco Chronicle.
The Future Of Both Hotels
The 1,921-room Hilton San Francisco Union Square and the 1,024-room Parc 55 San Francisco will — at least for the foreseeable future — remain open.
“The Hilton Union Square and the Parc 55 are open for business and will stay open for business,” said Alex Bastian, president and CEO of the SF Hotel Council, according to ABC 7 (Bay Area News).
“They are more vital than ever as we approach the summer high tourist season with a continuing increase in inbound visitors,” Bastian continued. “It is not uncommon for hotel ownership to change. While the timing of this may appear less than ideal, we fully expect new ownership to come forward.”
Robert Sammons, senior research director at real estate company Cushman & Wakefield, agreed, noting that San Francisco’s issues with office vacancy, homelessness and drug use, and a weak convention schedule are all improving, albeit slowly.
“Yes, the hotels probably do not have the occupancy rate the owners want, but I can’t imagine that the hotels are going to be completely vacant,” Sammons said, according to ABC 7. “There are so many tourists here, there is business going on here, and the hotels are needed.”
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