One of the biggest stories of the week was about the investment firm that owns the Hilton San Francisco Union Square and Parc 55 hotels declaring that it was walking away from its debt — essentially saying it's not worth it to them to keep making loan payments. But could this just be a negotiating tactic with their lender?
That is what some hotel experts are now saying, a couple days after the news broke. As one hotel consultant, Bob Rauch, tells KPIX, he's never heard of a hotel owner publicly declaring that they were defaulting on a loan — and he suspects there's more to the story.
"San Francisco's created a problem for them," Rauch says, referring to Virginia-based Park Hotels & Resorts, the hotels' owner. "So they're asking more than their lender for help, and that's why they're going public, I suspect."
Rauch suggests that maybe they're looking for the city to step in, and/or they just want to renegotiate the terms of their loan with JP Morgan Chase — essentially saying, "Do you want these hotels? They're yours unless you work with us."
"They're airing their dirty laundry, so to speak, but they're doing it in a way that perhaps is designed to get attention to the problem," Rauch tells KPIX. He says that renegotiations on hotel loans are pretty commonplace, but this tactic is not.
And, as KPIX reports, even if Park Hotels & Resorts misses their loan payment this month, it will be 90 days before JP Morgan can foreclose — so "there is plenty of time of negotiate," as reporter Katie Nielsen puts it.
In any event, the Hilton Union Square and Parc 55 are not in danger of closing, and their workers' union has assurances that any new owner would maintain all current levels of employment — with around 800 people employed at the Hilton, and almost 300 at the Parc 55.
As we learned Monday, Park Hotels & Resorts took out a $725 million loan in 2016 to purchase the hotels. The REIT's CEO, CEO Thomas J. Baltimore, put out a public statement saying "it is in the best interest for Park’s stockholders to materially reduce our current exposure to the San Francisco market."
Baltimore cited poor projects for hotel demand in the city based on "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."
SF Travel, the city's tourism bureau, is currently trying to broadcast the opposite message, launching an ad campaign to boost the city's national image and potentially attract more business conventions in the coming years. They have said that between 35 events at the Moscone Center this year, local hotels are expected to see 700,000 room-nights accounted for by business travelers.
Business travel is likely to recover at some point, and Park Hotels likely knows that, but it could take time. In comments at an aviation conference on Monday, United Airlines CEO Scott Kirby said that while consumer travel demand is once again "strong," the U.S. may be in a "business recession" that is dampening business travel demand.
Previously: Owner of SF's Largest Hotel, the Hilton Union Square, Is Walking Away, Surrendering It to Lender