Another bit of bad news for downtown San Francisco arrived Monday morning with the revelation that the investment firm that owns the Hilton San Francisco Union Square and Parc 55 hotels is walking away from its debts and giving up hope on a return of SF's convention market.
Virginia-based REIT Park Hotels & Resorts has opted to cease payments on a $725 million loan, as the SF Business Times reports today, essentially surrendering over 2,900 hotel rooms and hospitality facilities to its lender. This includes the 1,921-room Hilton San Francisco Union Square, which is San Francisco's largest hotel, occupying an entire city block, and one of the country's largest hotels outside of Las Vegas.
Park Hotels & Resorts is also giving up on the 1,024-room Parc 55, citing the continued debt burden of the two hotels on its portfolio, and multiple factors that have made the SF market less desirable for their business.
"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," said Park Hotels CEO Thomas J. Baltimore in a statement. "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."
As the Business Times notes, this marks a shift from three months ago, when Baltimore and another hotel group CEO visited personally with Mayor London Breed and expressed some optimism about the future of the business travel market.
The two hotels, as appraised in 2016 for the current loan, were worth a combined $1.56 billion. So it's a significant move that Park Hotels would walk away from debt that is less than half that amount — and as one analyst tells the Business Times, "it says that they are not optimistic that the business travel or convention and meetings business is going to return soon to downtown San Francisco."
Part of the economics of SF hotels, the Business Times notes, is the historic competition between leisure tourism and business travelers, especially the previously robust convention schedule, which meant lower vacancy rates throughout the year and higher-than-average room rates.
This also seems to point to the possibility that room rates will slide as well.
Hotels across the city have been changing hands with some frequency in the last decade, and the latest news does not mean that the Hilton or the Parc 55 will necessarily close.
JPMorgan Chase, which recently took over SF-based First Republic Bank, will become the new owner of the hotels and may now seek out a buyer at a fire-sale price.
Last week, SF Travel, the city's tourism outfit, launched a new ad campaign aimed at reviving the city's image in the minds of convention-planners, specifically.
Less than a decade ago, San Francisco enjoyed one of the highest hotel occupancy rates in the country, hovering around 84% in 2015. That slid in the next few years and tanked in the pandemic, but SF Travel said occupancy was back up to 62% in 2022 — which is similar to what it was around the dot-com bust two decades ago.
The agency noted that 35 events scheduled at the Moscone Center this year are set to account for 700,000 room-nights at hotels.
Photo via Trip Advisor/Hilton