The owner of the Hilton San Francisco Union Square and Parc 55 hotels in has chosen to stop making payments on $725 million in debt and turn the keys over to their lender, J.P. Morgan Chase.
Park Hotels and Resorts says San Francisco is too much of a mess and won’t be turned around any time soon. According to the ownership group’s CEO,
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.
The Hilton San Francisco Union Square is the city’s largest hotel with 1,921 rooms, and Parc 55 has 1,024 rooms. In 2016 the hotels were appraised for a combined $1.56 billion. The owner is turning over the keys even though they owe less than half that, showing just how far the value of San Francisco properties has fallen. They couldn’t sell the hotels, and couldn’t make the economics work even with the smaller debt load.
The properties remain open for business, but the decision underscores the struggles that San Francisco is going through. In some ways it’s been poorly governed for a century, though many of its problems are far newer. The pandemic made it vulnerable to these problems – people left (whether for LA or other states), and the reason to stay in San Francisco was because of the other people who there there. Work from home and work from anywhere increasingly meant being in San Francisco was no longer the exclusive path to success in tech and adjacent industries. Park Hotels had made a big bet on the city, and now they’re walking away too.
Will this be a wakeup call?