Hilton SF Union Square, Parc 55 owner stopping payments on loan, firm announces
The SF Hotel Council said the hotels will stay open for business.
SAN FRANCISCO (KGO) -- Another blow is being dealt to downtown San Francisco. The investment firm that owns Hilton San Francisco Union Square and Parc 55 hotels is walking away from its debt and surrendering them to its lender.
Park Hotels & Resorts has opted to cease payments on a $725 million loan, according to a press release.
"The Company intends to work in good faith with the loan's servicers to determine the most effective path forward, which is expected to result in ultimate removal of these hotels from its portfolio."
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The 1,921-room Hilton San Francisco Union Square is the city's largest hotel, occupying an entire city block. Parc 55 has 1,024 rooms.
"I can't imagine that they're going to be completely vacant, there are so many tourists still here, there is business going on here, they are needed, yes they probably do not have the occupancy rate that they want to have," Robert Sammons, Senior Research Director for Cushman & Wakefield said.
The firm cited the continued debt burden of the two hotels on its portfolio and multiple factors that have made the San Francisco market less desirable for their business.
In a presentation given to investors last month, Park Hotels and Resorts said San Francisco made up 16 percent of their sales in 2019, compared to just three percent over the last 12 months.
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Their key concerns are record levels of office vacancy (which are at 30 percent right now), fewer employees returning to offices, a "weaker than expected" convention calendar through 2027 and on-going concerns over safety and security.
"Those things have to be improved for the sake of everyone and there hasn't been as much progress as we'd like to see for sure," Sammons said.
Robert Sammons, a Senior Research Director for real estate giant Cushman & Wakefield says the narrative about the city surrounding crime, homelessness and drug use, on top of other retailers leaving entirely, hasn't helped the situation. Still, he believes it won't be long before new owners step in.
"It's the urban environment in general that has become the narrative right, that everyone is speaking about and it's slowly starting to turn around in a lot of markets and it has begun to start turning around in San Francisco but not fast enough," he said.
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San Francisco Mayor London Breed released a statement on Monday, confirming these businesses will continue to operate and no jobs will be lost at this time:
"These kinds of ownerships changes do happen, but these hotels will remain open and operating and the workers will continue to be employed. Still, we know there is a lot of work ahead of us and we will continue to focus on our economic recovery. That starts with fully funding my budget to build back police staffing and expand street cleaning, changing our business taxes to help stabilize existing businesses and recruit new ones, and aggressively implementing my Roadmap to Downtown San Francisco's Future."
The SF Hotel Council said in a statement that the hotels will stay open for business. Here's the full statement from President and CEO Alex Bastian:
"The Hilton Union Square and the Parc 55 are open for business and will stay open for business. They are more vital than ever as we approach the summer high tourist season with a continuing increase in inbound visitors. It is not uncommon for hotel ownership to change. While the timing of this may appear less than ideal, we fully expect new ownership to come forth."
Park Hotels & Resort's statement says, in part:
"This past week we made the very difficult, but necessary decision to stop debt service payments on our San Francisco CMBS loan," commented Thomas J. Baltimore, Jr., Chairman and Chief Executive Officer of Park. "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. 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 and will likely significantly reduce compression in the city for the foreseeable future. Unfortunately, the continued burden on our operating results and balance sheet is too significant to warrant continuing to subsidize and own these assets.
Ultimately removing the loan and the hotels will substantially improve our balance sheet and operating metrics, as net leverage is reduced by nearly a full turn, while 2022 Comparable RevPAR and Comparable Hotel Adjusted EBITDA Margin as compared to 2019 would improve approximately 800 basis points and 230 basis points, respectively. In addition, reducing the negative overhang from San Francisco will allow Park to continue to focus on our key priorities to reshape our portfolio by selling non-core assets, and recycling capital to reduce leverage, invest in strategic ROI projects, and opportunistically repurchase stock and/or acquire assets."
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