Dive Brief:

• Park Hotels & Resorts Inc., the Virginia-based lodging real estate investment trust that owns Hilton San Francisco Union Square and Parc 55 San Francisco, said that it has ceased making payments on a $725 million loan that was secured by the two hotels, according to a statement.
• The firm said it will continue to work with the loan servicers but plans to ultimately remove the hotels from its portfolio. The hotels will remain open as the bank seeks new ownership.
• The decision is another blow to what was once one of the strongest hospitality markets in the U.S., as the city of San Francisco fights against a perceived reputation of high crime that has been negatively affecting business and leisure travel.

Dive Insight:

As San Francisco struggles to attract tourists during its post-pandemic recovery, the city has been handed another setback. Hilton San Francisco Union Square and Parc 55 San Francisco account for more than 3,000 rooms combined.

The decision to halt loan payments on the properties was reached based on the “updated expectation for an elongated market recovery and the likelihood of both hotels materially under-earning relative to 2019,” according to Park’s most recent investor presentation. An ongoing analysis by the University of Toronto found that San Francisco is suffering from the slowest downtown recovery of any of the 63 largest cities in the U.S. and Canada.

Thomas J. Baltimore, Jr., chairman and CEO of Park, said in a statement that “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.”

He cited record-high office vacancies due to remote work schedules, “concerns over street conditions” due to “on-going concerns over safety and security,” and a “weaker than expected citywide convention calendar through 2027,” which he predicts will “negatively impact business and leisure demand.”

Thirty more properties in the city are facing massive loans that will come due over the next two years, reports the San Francisco Chronicle, with the second-largest mortgage deadline arriving in January 2024 when the Hilton San Francisco Financial District faces a $97 million loan maturation. The Huntington on Nob Hill and Yotel on Market Street were also recently sold in foreclosure auctions.

“It is not uncommon for hotel ownership to change,” said Alex Bastian, president and CEO of the Hotel Council of San Francisco, in a statement. “While the timing of this may appear less than ideal, we fully expect new ownership to come forth.”

According to its investor presentation, Park plans to focus on the Hawaii market as well as resorts as opposed to urban properties. The REIT still owns JW Marriott Union Square and Hyatt Centric Fisherman’s Wharf in San Francisco.