In another sign of underinvestment in the city, the owner of two of San Francisco’s biggest hotels, the Hilton San Francisco Union Square and Parc 55, has ceased making mortgage payments and plans to sell the two buildings.
Park Hotels & Resorts made the announcement on Monday, revealing that they have halted the $725 million debt payment that was due in November. They expect to eventually remove these hotels from their portfolio. During this process, they said they will work cooperatively with the loan servicers to determine the best course of action.
These hotels have been a big deal in the city, with the Hilton being the largest, boasting 1,921 rooms, and the Parc 55 coming in at fourth place with 1,024 rooms. Combined, they make up about 9% of the total hotel rooms in San Francisco. As part of the foreclosure process, the lenders might take control of the hotels or sell them to a new ownership group.
According to the company, the city is facing multiple challenges, including a staggering office vacancy rate of almost 30%, concerns about street conditions, a slower return to work compared to other cities, and a disappointing convention calendar until 2027. They say these factors are expected to have a negative impact on both business and leisure demand.
San Francisco’s convention business, which used to be a major driving force, is predicted to be 40% lower between 2023 and 2027 compared to the pre-pandemic period, as stated by Park Hotels.
The city’s convention agency, San Francisco Travel, expects Moscone Center conventions to occupy more than 670,000 hotel room nights this year. While this is a slight increase from 2018, it is significantly lower than the record-breaking 967,956 room nights in 2019. Furthermore, conference attendance is anticipated to remain low until 2030.
Tourism expenditures skyrocketed to $7.4 billion in 2022, more than quadrupling from the previous year. However, experts believe that a complete recovery won’t happen until 2024 or 2025.
By relinquishing ownership of the hotels, the company expects to save over $200 million in capital expenditures over the next five years and issue a special dividend of $150 million to $175 million to shareholders. The company’s focus will shift from San Francisco to the rapidly growing Hawaii market.