Famed San Francisco hotel’s “non-performing” loan gets shopped to buyers

By GEORGE AVALOS | gavalos@bayareanewsgroup.com | Bay Area News Group
PUBLISHED: March 1, 2023 at 5:30 a.m. | UPDATED: March 1, 2023 at 1:28 p.m.

Fresh signs have emerged that the Bay Area’s hotel market is wobbly — including efforts to scout for one or more investors willing to take over a faltering loan for a lodging icon that’s perched atop San Francisco’s famed Nob Hill.

The Stanford Court Hotel, a historic lodging site at 905 California Street and one of the best-known hotels in the region, is the focal point of an attempt to find a new holder of the loan on the property, according to a marketing flyer reviewed by this news organization.

The primary financing vehicle for The Stanford Court Hotel is a “non-performing senior loan with a total outstanding balance of $108.2 million,” stated the marketing package that’s being circulated by Eastdil Secured, a commercial real estate firm.

Stanford Court isn’t the only historic hotel on Nob Hill that faces a delicate financial situation.

The next block over, at 1075 California Street, the Huntington Hotel is in default on a $56.2 million loan on the property, San Francisco county records show.

Deutsche Bank, the lender on the Huntington Hotel property, has scheduled and canceled multiple public auctions that could produce a new property owner or enable the bank to seize ownership of the 136-room lodging site.

The indications of a difficult market for the hotel sector in the Bay Area extend beyond San Francisco. Two high-profile hotels in downtown Oakland and downtown San Jose were put up for sale recently but couldn’t find buyers:

• Oakland Marriott City Center, a hotel located at 1001 Broadway between 10th Street and 11th Street, was put on the market in early 2022. A few months later, the 500-room hotel’s owner, Los Angeles-based Gaw Capital, canceled its plans to sell the hotel, according to commercial property sources familiar with the sales efforts. Gaw Capital might attempt to refinance the existing $80 million loan on the hotel site.
• Hotel De Anza, a historic 100-room downtown San Jose hotel, was put up for sale in the fall of 2022. The sales price was $30 million, according to sources familiar with the effort to sell the 10-story hotel. A buyer wasn’t found and the hotel at 233 West Santa Clara Street in San Jose was taken off the market, the sources said.

The economic ailments caused by the coronavirus pandemic afflicted the hotel and travel sectors in the Bay Area and worldwide. Key parts of the Bay Area lodging market have yet to fully recuperate, said Alan Reay, president of Irvine-based Atlas Hospitality Group, which tracks the hotel market.

“The major markets with business-oriented hotels are still having problems,” Reay said. “San Francisco, downtown San Jose, downtown Oakland, New York City, Chicago, Seattle, Portland are all struggling.”

The woes that now face business-oriented hotels stand in stark contrast to the relatively robust markets in destination and luxury markets such as the Wine Country in Napa County and Sonoma County and the getaway areas of Monterey Bay and Big Sur.

“Those hotels in destination and luxury resort markets are hitting record numbers in revenue and record prices when the properties are sold,” Reay said.

The loan difficulties that have engulfed The Stanford Court Hotel and the Huntington Hotel in San Francisco, as well as the unsuccessful sales efforts that involved the Marriott in downtown Oakland and the De Anza Hotel in downtown San Jose, fit the template of a shaky hotel sector in parts of the Bay Area.

Nevertheless, all four hotels are in markets that have good long-term prospects, once tourism and business travel begin to fully rebound, real estate experts say.

The Hotel De Anza in San Jose has a bright future, Mark Ritchie, president of Ritchie Commercial, a real estate firm, said in September 2022 when that hotel was on the sales block.

“The hotel had a strong life in an earlier time and it will have a strong life in a future time,” Ritchie said of the De Anza.

The Stanford Court Hotel was touted as a property with excellent fundamentals, even with the reality that the property’s loan is deemed to be non-performing, according to the Eastdil Secured sales package.

“The offering presents a rare opportunity to acquire a senior mortgage secured by high-performing, irreplaceable real estate located in one of the top lodging markets globally,” Eastdil stated in the Stanford Court Hotel marketing package.

Even though business-oriented hotels are still struggling, signs of recovery have begun to emerge in the Bay Area’s primary business-oriented lodging markets, experts say.

“Downtown San Jose, downtown Oakland and San Francisco are still not close to where they were before the pandemic,” Reay said. “But average daily room rates and revenue have come back strongly in those markets.”