• Sat. Apr 20th, 2024

Park Hotels & Resorts Ceases Payments on Two San Francisco Hotels

Bynewsmagzines

Jun 5, 2023
Park Hotels & Resorts has ceased making payments toward the $725 million non-recourse CMBS loan for the 1,921-room Hilton San Francisco Union Square and the 1,024-room Parc 55 San Francisco. The loan is set to mature in November. Shown here is the Parc 55 San Francisco. (CoStar)

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Tysons, Virginia-based real estate investment trust Park Hotels & Resorts this month terminated payments toward a $725 million non-recourse loan for two hotels that is set to mature in November.

The loan covers the 1,921-room Hilton San Francisco Union Square and the 1,024-room Parc 55 San Francisco.

Park executives said in May during a first-quarter earnings call with investors and analysts that all options for a resolution on the maturing loan were “on the table” and would not dismiss the possibility of handing back the keys to the two hotels.

The loan on the Hilton San Francisco Union Square and Parc 55 carries an interest rate of 4.11%. Wells Fargo is the servicer of the loan.

According to a news release, Park “intends to work in good faith with the loan’s servicers to determine the most effective path forward, which is expected to result in ultimate removal of these hotels from its portfolio.”

“This past week we made the very difficult, but necessary decision to stop debt service payments on our San Francisco CMBS loan,” Park chairman and CEO Thomas J. Baltimore, Jr., said in the news release. “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. Now more than ever, we believe San Francisco’s path to recovery remains clouded and elongated by major challenges — both old and new: record-high office vacancy; concerns over street conditions; lower return to office than peer cities; and a weaker-than-expected citywide convention calendar through 2027 that will negatively impact business and leisure demand and will likely significantly reduce compression in the city for the foreseeable future. Unfortunately, the continued burden on our operating results and balance sheet is too significant to warrant continuing to subsidize and own these assets.”

Baltimore has said in the past that the company’s heavy presence in San Francisco sets it apart from other hotel-focused REITs. Park owns the 344-room JW Marriott San Francisco Union Square and the 316-room Hyatt Centric Fisherman’s Wharf in San Francisco, along with other Bay Area hotels: the 505-room DoubleTree Hotel San Jose, the 360-room Hilton Oakland Airport, the 245-room DoubleTree Hotel Sonoma Wine Country and the 224-room Juniper Hotel Cupertino.

Executives said that stopping payments on the loan and removing the hotels from Park’s portfolio will result in an improved balance sheet and operating metrics. Additionally, reducing the negative overhang from San Francisco will allow the company to focus on its “key priorities to reshape our portfolio by selling non-core assets, and recycling capital to reduce leverage, invest in strategic [return on investment] projects, and opportunistically repurchase stock and/or acquire assets,” the company news release states.

Park’s total portfolio consists of 46 premium-branded hotels and resorts with more than 29,000 rooms in city center and resorts locations.

Read more news on Hotel News Now.

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