Park Hotels and Resorts has ceased payments on a $725m loan on its San Francisco properties, including the 1,921-room Hilton San Francisco Union Square and the 1,024-room Parc 55 San Francisco. The company is expected to give the two hotels back to its lender. The decision is a major disinvestment for the city’s hospitality market, which was once one of the strongest in the US.

By Madeline Beaumont

Park Hotels and Resorts has ceased payments on a $725m loan on its San Francisco properties, including the 1,921-room Hilton San Francisco Union Square and the 1,024-room Parc 55 San Francisco. The company is expected to give the two hotels back to its lender. The decision is a major disinvestment for the city’s hospitality market, which was once one of the strongest in the US. The two hotels make up around 9% of the city’s total stock of hotel rooms. The move could be among the first in a line of dominos to fall in San Francisco’s hotel market, As reported in hotel consulting firm Atlas Hospitality Group.

As reported in the SF Standard, Park Hotels and Resorts, a real estate investment firm based in Virginia, has announced that it has ceased paying back a $725 million loan on its main San Francisco properties. The firm is likely to give two of the largest hotels in the city back to its lender. This decision represents a major disinvestment and negative sign for what was once one of the strongest hospitality markets in the country.

The two properties that Park Hotels is expected to offload are the city’s largest hotel, the 1,921-room Hilton San Francisco Union Square, and its fourth-largest hotel, the nearby 1,024-room Parc 55 San Francisco. Together, these two properties make up around 9% of the city’s total stock of hotel rooms.

Park Hotels announced that it had stopped making payments on the loan, which has a November 2023 maturity date. In an earnings call earlier this month, Park Hotels CEO Thomas J. Baltimore Jr. said that the company expected to have the situation resolved by summer.

As reported in Alan Reay, president of hotel consulting firm Atlas Hospitality Group, some hotels are facing headwinds similar to San Francisco’s office market, which is seeing record-high vacancies. “You tend to see issues, particularly in large, full-service hotels that have been focused on the business and commercial side of the business, like those focused on meetings and conventions,” Reay said. He contrasted the situation with smaller leisure hotels in areas like Napa, Sonoma, and Monterey counties that have reaped record revenues.

Reay said he’s concerned that the Park Hotels decision could be among the first in a line of dominos to fall in San Francisco’s hotel market. He pointed to other signs of trouble, such as the distressed sale of the Huntington Hotel in Nob Hill and financial troubles at the nearby Stanford Court Hotel, which is having trouble paying back its loan.

In 2016, Hilton San Francisco Union Square and Parc 55 San Francisco were appraised at $1.6 billion, As reported in CMBS loan documents. Reay said the rubber could meet the road when a lender takes control of the properties and sells them off at a substantial discount. “If you have a 50% reduction in value since 2016, if you start to take that across the board on other hotel assets, that’s going to be a major problem,” Reay said, noting that the properties most at risk are larger hotels that cater to business travelers.

In 2019, Hilton Union Square and Parc 55 earned $175.4 million and $95 million in room revenue, respectively. By 2022, those figures had fallen significantly. The COVID-19 pandemic has had a significant impact on the hospitality industry, and San Francisco’s hotel market has been hit particularly hard. With the city’s office market also struggling, it remains to be seen how the hotel industry will recover.