Park Hotels & Resorts, the company behind two of San Francisco’s largest hotels, has announced its plan to surrender ownership of the Hilton San Francisco Union Square and Parc 55 hotels.
This move is expected to be the beginning of a mass exodus of hotels from the city, as 30 additional properties are facing massive loan repayments due over the next two years [up to 2025].
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Park Hotels stops loan payments for Hilton San Francisco Union Square and Parc 55
Park Hotels & Resorts revealed on Monday that it has halted payments on its $725m loan, which is due in November 2023, for the Hilton San Francisco Union Square and Parc 55 hotels.
While these two hotels are among the largest in the city, they are not the only ones facing financial difficulties as loan repayment dates draw near.
Foreclosure auctions and more hotels in trouble
The recent foreclosure auctions of The Huntington on Nob Hill and Yotel on Market Street are clear indicators of the challenges faced by San Francisco’s hotels.
Analysts are now warning that over two dozen additional hotels could follow suit as their loans also fall due. The city’s prevalent drug use and growing homeless population have further exacerbated the situation.
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By GlobalDataUncertain fate of Hilton San Francisco Financial District
The Hilton San Francisco Financial District, the largest hotel in San Francisco, is also at risk of foreclosure.
It is facing a $97m loan maturation in 2024, and if its owners are unable to meet the payment, they may join the growing list of hotels abandoning the city.
Reasons behind the exodus
San Francisco’s struggling hotel industry is attributed to a range of factors. The city’s high crime rates, with prevalent drug use and unprosecuted theft, have significantly impacted its reputation.
Numerous retail closures and the departure of major stores from downtown locations have further tarnished the city’s image.
The record-high office vacancy rate, concerns over street conditions, lower office returns compared to other cities and a weakened convention calendar have all contributed to the declining value of hotel properties.
San Francisco’s slow recovery and declining tourism
Compared to other major cities, San Francisco has experienced a slower recovery following the pandemic. The daily hotel room rate remains below 2019 levels, while other major markets have surpassed pre-pandemic figures, partly due to inflation.
The city’s dependence on Chinese leisure tourists, who were barred from returning until recently, and reduced corporate travel have further impacted the tourism industry.
Major conferences have also opted for cities elsewhere, due to rising crime rates.
Challenges of homelessness, crime and drug use
San Francisco continues to struggle with a skyrocketing homeless population, drug addiction and mental instability on its streets. The city has witnessed a surge in drug-related deaths and an increase in violent crime.
These issues, coupled with inadequate public policies and a slow response to addressing the problems, have driven away companies and consumers.
Looking ahead for San Francisco’s hotels
San Francisco faces a critical juncture as hotels grapple with impending loan deadlines. The exact amount owed by the 30 hotels is unknown, and the specific properties involved have not been disclosed.
But the challenges posed by crime, homelessness and drug use, coupled with a sluggish recovery and declining tourism, are likely to impact the city’s hospitality industry and its ability to attract visitors and investors in the coming years.
