Receiver Appointed for Two Large San Francisco Hotels

Nearly five months after Park Hotels & Resorts announced it had stopped making payments on a $725M CMBS loan backed by two of the largest hotels in San Francisco, a receiver has been appointed to take control of the hotels pending a sale.

Michelle Russo, CEO of Providence, RI-based Hotel Asset Value Enhancement (HotelAVE) was tapped by the San Francisco Superior Court to take control of the 1,921-room Hilton San Francisco Union Square-the largest hotel in San Francisco and the largest Hilton on the West Coast-and the 1,024-room Parc 55.

The receiver was appointed after Wilmington Trust, a trustee representing the lender, filed a lawsuit. According to a report in the San Francisco Business Times, HotelAVE will have until September 1, 2024 to find an adequate buyer for the properties.

If the receiver doesn’t sell the two hotels before the deadline, the properties will go into nonjudicial foreclosure.

The San Francisco Business Times also reported this week that Blackstone is in discussions with CWCapital, a special servicer working on behalf of a CMBS trust, for a “possible deed-in-lieu” deal on the 346-room Club Quarters hotel in San Francisco.

In 2020, Blackstone defaulted on a $274M loan backed by the hotel, located on 424 Clay Street, and other Club Quarters properties in Boston, Chicago and Philadelphia.

“This is a very small investment that went into special servicing in the summer of 2020 and was written off more than two years ago. We are cooperating with all parties involved to ensure a smooth transition of ownership,” Blackstone said, in a statement.

The two San Francisco hotels assigned to the HotelAVE CEO this week are adjacent to each other. The Hilton Union Square, located at 333 O’Farrell Street, closed when the pandemic began and reopened in May 2021. Parc 55, located at Cyril Magnin Street, reopened in May 2022.

The two hotels were valued at a combined $1.56B when the CMBS packaged for them was issued in 2016 by JPMorgan Chase.

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. In June, the REIT’s CEO, Thomas Baltimore, said that the company had determined that the prospects for a recovery in San Francisco do not look bright, and it planned 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,” Baltimore said. “Removing the loan and the hotels will substantially improve our operating balance sheet and operating metrics.”