The Virginia-based real estate investment firm, Park Hotels & Resorts, owns two of San Francisco's biggest hotels, including the city's largest, the Hilton San Francisco Union Square, as well as Parc 55. But they're now deciding to stop making payments on a $725 million loan, which means they'll be handing over these properties to the lender.
This decision is pretty big news. It signals that they're not hopeful about business travel and big conventions bouncing back anytime soon in San Francisco, which used to be a major part of their business. They're also pointing to problems like a lot of vacant office space and less-than-stellar city conditions as reasons for the struggle. This could lead to hotel room rates going down in the city. As for the hotels themselves, they're not closing their doors just yet. JPMorgan Chase, the bank now owning them, may try to find a buyer.
"After much thought and consideration, we believe it is in the best interest for Park's stockholders to materially reduce our current exposure to the San Francisco market," said Park Hotels CEO Thomas J. Baltimore in a statement. "Now more than ever, we believe San Francisco's path to recovery remains clouded and elongated by major challenges, both old and new: 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 that will negatively impact business and leisure demand."
As the Business Times notes, this marks a shift from three months ago, when Baltimore and another hotel group CEO visited personally with Mayor London Breed and expressed some optimism about the future of the business travel market.
The two hotels, as appraised in 2016 for the current loan, were worth a combined $1.56 billion. So it's a significant move that Park Hotels would walk away from debt that is less than half that amount — and as one analyst tells the Business Times, "it says that they are not optimistic that the business travel or convention and meetings business is going to return soon to downtown San Francisco."
