San Francisco Doubles Fee Hike on Hotels

As green shoots begin to emerge in San Francisco’s battered hotel sector, the board of the Tourism Improvement District (TID) has announced a doubled increase of its assessment on nightly hotel rates in a bid to boost tourism and stem the exodus of conventions from the city.

The board, including prominent hoteliers and city officials, approved what was characterized as an “emergency” fee hike—the second increase of the TID fee to take effect this year—after concluding that “San Francisco is not a competitive destination at this moment in time,” the San Francisco Business Times reported.

The increase of the hotel fee to 2.25% effective Nov. 1 will generate an estimated $14.6M in additional revenue, most of which will be used to fund SF Travel, a marketing agency that promotes tourism and convention business in San Francisco.

The 11-member TID board, which includes SF Travel’s interim board chair John Anderson, city administrator Carmen Chu, and general managers from half a dozen large downtown hotels, said in a public decision letter dated Aug. 24 that they believe SF Travel is in desperate need of extra funding.

Revenue generated by the TID fee has fallen sharply from pre-pandemic levels—in 2019, a fee of 1% generated nearly $26M—as numerous big-ticket events canceled conferences that were scheduled to take place at San Francisco’s Moscone Center after it reopened in 2021.

“Our rivals nationwide are generating significantly more revenue than we are, allowing their DMOs to be more fully staffed and to execute a wider range of programs and campaigns,” wrote Markus Treppenhauer, general manager of the Fairmont San Francisco and chair of the TID board. “As a result, we are regularly losing business commitments that would otherwise have been well within our grasp.”

The additional TID funding will enable SF Travel, which books citywide events at Moscone, to offer meeting planners perks including transportation for guests to and from hotels to the convention center, extra security at the downtown venue and a discount on venue rental costs, the report said.

The latest TID fee increase comes on top of a 15-year extension and renewal of the TID, effective this year and lasting through 2038, that bumped the hotel fee up from its pre-pandemic level of 1% or 0.75%—depending on a hotel’s proximity to Moscone—to 1.25% and 1%, respectively.

Last week’s report of the fee increase came amid the return of Salesforce’s Dreamforce conference to Moscone, an event that appeared to meet expectations that it would draw at least 45K attendees generating an estimated economic impact of $93M to the city.

Domestic and international travel to San Francisco has been slowly improving. Marcus and Millichap project that RevPAR in the city will reach $169 by the end of the year, while occupancy will climb to 70%, which would be 12% below 2019 levels.

The depth of the hole that San Francisco’s hotel sector is digging out of is illustrated by a recent report from Trepp that said the CMBS delinquency rate for loans backed by hotels in the city hit nearly 42% in June, up from only 5.7% a year earlier, the largest annual increase among the 25 largest metro markets.