By Alex Barreira – Staff Reporter, San Francisco Business Times
Nov 20, 2024 | Updated Nov 20, 2024 7:15am PST

As the contract impasse between San Francisco hotel workers union Unite Here Local 2 and operators Hilton, Hyatt and Marriott nears its 100th day, the union is turning its appeals to a surprising place: Wells Fargo.

The big bank is the master servicer of the $725 million loan guaranteed by the city’s largest hotel complex, the Hilton San Francisco Union Square and Parc 55. As such, it’s obligated to defend the interest of bondholders. So the union has tried to recruit Wells Fargo and the Hilton bondholders to its side and pressure the operators to come to terms.

Unite Here said it hopes that with enough pressure, Wells Fargo will put in a word with Hilton to give in to the union’s demands on health care, shift allotment and wages in the next collective bargaining agreement.

The union has agreed to contracts with individual Hiltons in Boston, Honolulu, San Diego, San Jose and Baltimore, but not in San Francisco.

In the meantime, Unite Here is doing what it can to make Hilton and the bondholders feel that time without a contract is money lost for them, too. Loud protests outside hotel entrances are a daily occurrence, generating complaints in online guest reviews, and the union says several group events have canceled planned meetings at the hotels.

“They continue to picket outside the Hilton Union Square 24/7,” read commentary in this month’s bondholder report for the loan. “This disruption has resulted in many cancellations.”

Unite Here has about 670 workers on strike at the Hilton San Francisco Union Square, and another 260 at the Parc 55 who have voted to authorize a strike and could walk off at any moment. Another march with 2,000 hotel workers is planned for Wednesday.

“The message we’re sending to bondholders and potential buyers is: don’t make the same mistake that hotel operators are making and underestimate us,” said Ted Waechter, spokesperson for Unite Here Local 2.

Waechter said this is the first time in the union’s history it’s reaching out specifically to commercial mortgage-backed securities bondholder interests, and it hasn’t heard back from Wells Fargo.

A Wells Fargo spokesperson declined to comment.

Alan Reay, president of consultancy Atlas Hospitality, acknowledged the unique leverage of the moment the union has with a hotel complex in receivership and forecasting a $30 million operating deficit this year.

“No one’s going to want to buy this deal while the numbers are way down and people are out striking,” Reay said. “But on the reverse of that, bondholders are probably saying, what happens if we agree to all those terms, how will that impact the prospective buyer and the value of the hotel?”

The value of the nearly 3,000-room hotel complex was already cratering, losing more than $1 billion between valuations in 2016 and 2024. In September, Morningstar downgraded credit ratings for all classes of the commercial mortgage pass-through certificates affiliated with the loan and issued by Hilton USA Trust 2016-SFP.

“Any significant increases in payroll will likely offset any gains in Occupancy or Average Daily Rate the properties might achieve in 2025,” the November bondholder report concluded.