Flagship hotels are becoming collateral damage in San Francisco's office mess
- Park Hotels & Resorts, an investment company, defaulted on a $725 million San Francisco hotel loan.
- The company's CEO plans to give up the properties, blaming remote work and "street conditions."
By now, defaults on San Francisco office building loans should come as little surprise, with the permanence of remote or hybrid work emptying the downtown of white-collar workers. Even the architectural trophy properties are suffering.
But the decline of the Golden City's downtown, centered around the once-bustling Union Square, has found a new victim: its hotels.
This week, Park Hotels & Resorts, one of the largest publicly-traded hospitality investment companies with more than 29,000 rooms, chose to default on a $725 million loan secured by two flagship San Francisco hotels, the Hilton San Francisco Union Square and its Parc 55, about a block away. The company said it expected to give up ownership of the hotels.
The "burden" of the properties was just too great, and it's not only because workers are abandoning the area, Thomas Baltimore, the Park Hotels CEO, said 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," Baltimore said.
San Francisco has been one of the large urban metros hit hardest due to remote work and the outright exits of large technology companies. Late last year, companies including Snap, Meta, and Salesforce gave up hundreds of thousands of square feet of office space, exacerbating a glut that has inflated the city's office vacancy rate to nearly 30% last quarter, up from less than 5% three years earlier, according to CBRE.
In the US as a whole, hotels have been recovering from hits during the pandemic, and loan delinquencies across the hospitality sector have edged lower over the past year, according to Trepp, a commercial real estate debt data provider.