Two of SF’s biggest hotels face a $725 million loan deadline
Two of San Francisco’s biggest hotels, Hilton San Francisco Union Square and Parc 55, face a $725 million loan maturity deadline in November. The owner of Park Hotels said, on an earnings call this week, it is exploring all options for the properties, including potentially giving them up to their lenders. The company could also extend the loan deadline.
“All options are being explored, and we hope to have this resolved by the summer,” said Thomas Baltimore Jr., chairman and CEO of Park Hotels.
“If we were hypothetically to give back the keys, there’s a forgiveness of debt. The income that we would have, we’re able to shield, certainly, most of that, but not all of that. It would result in a potential dividend payout of $150 million to $200 million approximately,” he said.
The debt negotiations affect nearly 3,000 hotel rooms or 9% of the city’s entire supply. The 1,921-room Hilton Union Square is the city’s biggest hotel and shuttered for 14 months at the start of the pandemic, reopening in May 2021. The 1,024-room Parc 55, the city’s fourth-largest hotel and located downtown, was closed for two years before reopening in May 2022.
Tourism has partially rebounded in San Francisco and California, but a full return to 2019 levels isn’t expected in the city until 2024 or 2025.
San Francisco’s Hilton Union Square hotel has an uncertain future as its owner said it could return the hotel to the lender that financed the property.
Scott Strazzante/The ChronicleBaltimore said the company had a confidentiality agreement and wouldn’t get into specifics on negotiations with the loan servicer, which real estate firm CoStar identified as Wells Fargo. The bank declined to comment. The loan has an interest rate of 4.11%, according to Park Hotels.
Virginia-based Park Hotels also owns the 344-room JW Marriott Union Square and the 316-room Hyatt Centric Fisherman’s Wharf.
The company’s four San Francisco hotels were 48% occupied during the first quarter, up from 24.7% in the first quarter of 2022. The average daily room rate was $294.80 in the first quarter, up from $202.36 in the prior year period.
Baltimore said all four San Francisco hotels were profitable for the first time during the pandemic, based on earnings before interest tax depreciation and amortization. He cited January’s JPMorgan conference as a driver of higher room rates.
“We also recognize that it’s still 30% to 40% below 2019 levels and it’s certainly lagging other markets,” he said of the city.
Park Hotels said convention bookings tripled to over 140,000 room nights compared to the first quarter in 2022.
“We are cautiously optimistic,” said Baltimore, who said he visits San Francisco every four to six weeks and meets with city officials and business leaders. “It’s still a challenging environment. When you think about San Francisco, we have no doubt in our view that of course San Francisco will come back. It’s not a matter of if, but when.”
“We certainly believe that San Francisco is going to take time, and it’s going to be a few years before it certainly fully recovers,” he said. “The street conditions are improving. They are far better than I think it has been reported but the city has got to do a better job, of course, communicating that to the broader public.”
Baltimore said San Francisco was probably the second-most supply constrained US hotel market with only around 32,000 rooms, with only Key West, Fla., being more constrained.
Park Hotels sold two San Francisco properties during the pandemic: the 360-room Le Meridien for $221 million and the 171-room Hotel Adagio for $82 million. Park Hotels has $1.8 billion in liquidity and net debt is currently $3.9 billion.
“But we have no doubt that San Francisco recovers for the reasons we talked about, when you think about venture capital, you think about education, the natural beauty, you look at the AI spend,” Baltimore said.
Reach Roland Li: [email protected]; Twitter: @rolandlisf