Owner of two of San Fran's largest hotels - Hilton Union Square and Parc 55 - STOPS making payments on $725 million loan due in November because the crime-ridden city's 'path to recovery remains clouded'
- Park Hotels and Resorts announced on Monday it stopped making mortgage payments on the Hilton San Francisco Union Square and Parc 55
- CEO Thomas Baltimore Jr said the city's 'path to recovery remains clouded and elongated by major challenges'
- The city has become a ghost town with empty storefronts
The owner of two of San Francisco's largest hotels has stopped making mortgage payments on the properties and will let them go into foreclosure as historic crimerates continue to deter tourists.
Park Hotels and Resorts announced on Monday that it stopped making payments on its $725 million loan due in November for the Hilton San Francisco Union Square and Parc 55 — the largest and fourth-largest hotels in the city, respectively.
'After much thought and consideration, we believe it is in the best interest for Park's stockholders to materially reduce our current exposure to the San Francisco market,' CEO Thomas Baltimore Jr said in a statement.
'Now, more than ever we believe San Francisco's path to recovery remains clouded and elongated by major challenges — both old and new' as the city becomes a ghost town with empty storefronts.
'Ultimately, the continued burden on our operating results and balance sheet is too significant to warrant continuing to subsidize and own these assets.'
San Francisco's largest hotel, the Hilton Union Square, left, is set to be foreclosed upon as the owner of the hotel and Parc 55, right, announced on Monday that it will no longer make payments on its $725 million loan
Major stores continue to back out of crime-ridden San Francisco, with a disturbing report showing 95 retailers downtown - more than half - have closed since the start of the COVID pandemic. This map shows a small selection of the big-name departures
Shares of Park Hotels and Resorts ticked up on Tuesday following the news
Its share prices plummeted more than 25 percent over the past year
The company will instead focus its efforts on expanding into the more in-demand Hawaii market, Baltimore said, and will 'work in good faith with the loan's servicers to determine the most effective path forward.'
Its share prices rebounded more than 2.5 percent following the announcement, after falling 25.26 percent over the past year.
The two hotels were once profitable, valued at $1.6 billion in 2016, according to CMBS loan documents.
The Hilton Union Square boasted that it was just a block away from theaters and the Powell Street cable car turnaround, Museum of Modern Art and Moscone Convention Center are all within a mile.
It has an outdoor pool, a whirlpool and the city's tallest skybar, offering panoramic views of the city.
Park Hotels and Resorts CEO Thomas Baltimore Jr said the city's path to recovery 'remains clouded'
Since it opened in 1964, the Hilton has been recognized for its unique architecture and once hosted The Beatles.
Parc 55, meanwhile, is a newer building featuring a Michelin-rated Thai restaurant.
In 2019, Hilton San Francisco Union Square and Parc 55 earned $175.4 million and $95 million in room revenue, respectively. But by 2022, those figures fell to less than $30 million each, according to The San Francisco Standard.
Park Hotels now estimates that it will save over $200 million in capital expenditures over the next five years just by offloading the properties and could even offer special dividends to shareholders of $150 to $175 million.
The company blames record-high office vacancy of around 30 percent, concerns over street conditions, a lower rate of return to offices compared with other cities and a 'weaker than expected citywide convention calendar through 2027 that will negatively impact business and leisure demand' for the declining value of the properties.
It said convention-driven demand is expected to be about 40 percent lower between 2023 and 2027, compared with the pre-pandemic average.
Making matters worse, Parc 55 is located just one block away from where alleged shoplifter Banko Brown was killed in a shooting in April.
Banko Brown, 24, was shot dead after he allegedly shoplifted a Walgreens
Surveillance footage shows Brown in a white T-shirt and gray sweatpants, walking out of the store with some bags, when he is confronted by Michael Earl-Wayne Anthony, 33
His death sparked protests in the city after District Attorney Brooke Jenkins ruled that Anthony 'acted in self-defense' and was not charged
Homicides in the city are now up 5 percent from the same time last year, while robberies are up more than 16 percent
Surveillance footage showed Brown, 24, walking out of a Walgreens store with plastic bags when he is confronted by a security guard — who was later identified as Michael Earl-Wayne Anthony, 33.
Anthony was able to pin Brown to the ground, but then let him go as Brown walked out the store.
But after another apparent argument, Anthony shot Brown, who collapsed on the sidewalk, where a crowd of people gathered around him. He was rushed to a nearby hospital, where he later died.
His death sparked protests in the city after District Attorney Brooke Jenkins ruled that Anthony 'acted in self-defense' and was not charged.
That same month, CashApp founder Bob Lee was found stabbed to death on the street after calling police and pleading for help.
The 42-year-old tech mogul called 911 at 2:34am, and police arrived at the scene in under six minutes.
But a coroner's report revealed in graphic detail how Lee was found slumped outside an apartment block with no pulse before paramedics rushed him to hospital, where knife wounds were found on his heart and a lung.
Nima Momeni, 38, has since been charged in Lee's death, with prosecutors claiming he vowed to 'come down hard' on the CashApp founder over his relationship with his married sister, with whom Lee exchanged intimate text messages.
Homicides in the city are now up 5 percent from the same time last year, while robberies are up more than 16 percent.
Motor vehicle thefts and arson cases are also up 5.7 percent and 5 percent, respectively.
Tech executive and investor Bob Lee, who helped create Android and Cash App, was found stabbed to death in San Francisco in April
He was found slumped outside an apartment block with no pulse before paramedics rushed him to hospital
At the same time, San Francisco saw a staggering 41 percent surge in the number of drug-related deaths in the first quarter of 2023 compared to the same time last year, as fentanyl ravaged the city's homeless population.
The Californian coastal hub saw 200 people die due to overdoses between January and March, compared to 142 deaths in 2022, according to recent data from the city's medical examiner.
That amounts to one overdose death every 10 hours in a city that has seen its reputation as a coastal gem tarnished by worsening crime, drugs, and, homelessness rates, even as it remains home to tech billionaires.
The overdose victims were disproportionately black and Latino men, and frequently based in the Tenderloin area, a gritty downtown neighborhood, where a drug treatment center was shuttered in December.
An open-air drug market in the SOMA District of San Francisco is pictured here
Homeless people are pictured chatting with each other as homeless rates rise in San Francisco
San Francisco saw a staggering 41 percent surge in the number of drug-related deaths in the first quarter of 2023
Those jarring figures have driven more than half of all San Francisco's downtown retailers to flee the city.
Out of 203 retailers open in 2019 in the city's Union Square area, just 107 are still operating, a drop of 47 percent in just a few pandemic-ravaged years.
Among the heavy hitters, Brooks Brothers, Ray Ban, Christian Louboutin, Lululemon and Marmot have all packed it in.
Another 12 new retailers have opened in the area since the pandemic began in 2020 but already two have them have either closed or plan to shut down.
Williams-Sonoma also announced it will shut down in 2024.
Now, Alan Reay, the president of hotel consulting firm Atlas Hospitality Group, fears other hotels may flee the city as well.
He said full-service hotels that specifically cater to businesses are especially at risk, pointing to other signs of trouble like the sale of the Huntington Hotel in Nob Hill and the financial troubles at Stanford Court Hotel, which is struggling to pay back its loan.
'To have a publicly-traded company giving back the two of the largest hotels in the city, it's pretty scary for other hotel owners in San Francisco,' he told the Standard.
'I hate to sound doom-and-gloom, but I think it's going to get worse before it gets better.'
But Alex Bastian, president and CEO of the Hotel Council of San Francisco was more optimistic as he proclaimed that both the Hilton San Francisco Union Square and Parc 55 'are open for business and will stay open for business.
'It is not uncommon for hotel ownership to change,' he said. 'While the timing of this may appear less than ideal, we fully expect new ownership to come forth.'
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