URW Hands San Francisco's Largest Mall Back to Lender

The implosion of downtown San Francisco—hollowed out by hybrid office workers and facing an exodus of retailers with a death of foot traffic—continues at a steady clip.

On Monday, Unibail-Rodamco-Westfield (URW) disclosed it has stopped making payments on $558M in debt for the Westfield San Francisco Centre, the largest shopping mall in the city.

The company said the 1.2M SF mall at 865 Market Street near Union Square will transfer to receivership. The Westfield Centre, currently 55% occupied, is jointly owned by URW and Brookfield Properties, which acquired a stake through its acquisition of Forest City.

Deutsche Bank originated the loan for the mall in 2016. Midland Loan Services has been designated as the special servicer.

The move comes a month after an anchor tenant, Nordstrom, announced it is shutting its 300K SF store at the Westfield mall, and a week after the two largest hotels in Union Square also stopped making debt payments.

“Given the challenging operating conditions in downtown San Francisco, which have led to declines in sales, occupancy and foot traffic, we have made the difficult decision to begin the process to transfer management of the shopping center to our lender to allow them to appoint a receiver to operate the property going forward,” said Molly Morse, a spokesperson for URW, in a statement.

According to Morse, sales at the Westfield San Francisco Centre dropped to $298M last year from a pre-pandemic level of $455M in 2019, while foot traffic has declined by 43% in the same period.

Since the beginning of the year, retailers including Office Depot and Anthropologie have announced they are closing their Market Street stores. A Whole Foods store in the neighborhood said it would vacate the space because of safety concerns.

San Francisco Mayor London Breed suggested in a statement that URW’s move was not unexpected. Since the beginning of last year, Paris-based URW, the largest mall owner in Europe, has been divesting its mall holdings in the US as part of a corporate strategy to reduce its debt.

However, those divestitures have been accomplished by selling the properties, not by giving them up to lenders. URW says its other malls in California are experiencing a resurgence in sales.

Breed said the city would “pursue a new vision” for the Westfield mall space, indicating the site might be suitable for “new types of business or educational institutions.”

When Nordstrom announced last month that it will vacate its store at the Westfield San Francisco Centre in August, URW issued a statement blaming a growing crime problem downtown for driving out retailers.

“The closure of Nordstrom underscores the deteriorating situation in downtown San Francisco,” URW’s statement said. “A growing number of retailers and businesses are leaving the area due to the unsafe conditions for customers, retailers, and employees, coupled with the fact that these significant issues are preventing an economic recovery of the area.”

Park Hotels & Resorts last week 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 last 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. However, Park CEO Thomas Baltimore said in a statement last week that the company has determined that the prospects for a recovery in San Francisco do not look bright, and 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.