Park Stops Paying Debt on Largest San Francisco's Hotels

Park Hotels & Resorts on Monday announced it has stopped making payments on a $725M CMBS loan backed by two of the largest hotels in San Francisco in order to pave the way for a divestiture of the properties.

The sister hotels, which sit side-by-side on O’Farrell Street, are the 1,921-room Hilton San Francisco Union Square—the city’s largest hotel, also the largest Hilton on the West Coast—and its neighbor, Parc 55, which with 1,024 rooms is the fourth-largest lodging in the city.

The two hotels were valued at a combined $1.56B when the CMBS packaged for them was issued in 2016 by JPMorgan Chase. The loan is not delinquent: until this week’s announcement, Park has been up to date on its $2.5M monthly debt service payments, the San Francisco Business Times reported.

In February, Park said it was “confident” it could work out a refinancing plan with JPMorgan on the $725M debt, which comes due in November. On Monday, Park CEO Thomas Baltimore said that the company has determined that the prospects for a recovery in San Francisco do not look bright, and it the company plans to divest the two properties.

“Now more than ever, we believe San Francisco’s path to recovery remains clouded and elongated by major challenges: 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,” Baltimore said, in a statement.

“Unfortunately, the continued burden on our operating results and balance sheet is too significant to warrant continuing to subsidize and own these assets,” the CEO said. “Removing the loan and the hotels will substantially improve our operating balance sheet and operating metrics.”

If Park ends up surrendering the keys to the properties on the basis of the $725M loan, that would equate to a loss of more than half the 2016 value.

In March, two landmark hotels in Nob Hill with delinquent loans went on the selling block.

The Huntington Hotel was acquired by a joint venture of Flynn Properties and Highgate Hotels which purchased a $56M CMBS from Deutsche Bank. The previous owner, Los Angeles-based Woodridge Capital, defaulted on the loan in August and closed the historic 135-room hotel, which was built in 1922.

According to reports, the partners, who plan to renovate the hotel and reopen it, submitted a nominal reserve bid of $29M for the historic lodging at a foreclosure auction in which there were no other bidders.

The Stanford Court Hotel, a historic lodging site at 905 California Street and one of the best-known hotels in the region, also went on the market under fire-sale conditions in March. Eastdil Secured is marketing the loan.

A non-performing senior loan backed by the Stanford Court had an outstanding balance of $108M as of March, according to Eastdil’s marketing materials.

While San Francisco’s hotels have rebounded significantly since last year in terms of average daily rate (ADR) and occupancy, the city is still lagging far behind other major US markets.

With a 70% occupancy in May, San Francisco’s RevPAR remains more than 25% below the pre-pandemic level. NYC’s hotels, by comparison, reached 86% occupancy in April, with RevPAR tracking 10% above 1029 levels.