Why The Largest US Hotel (Outside Of Vegas) Was Abandoned in San Francisco
The largest US hotel outside of Las Vegas, the Hilton Union Square in San Francisco, California has been abandoned by its owner at a cost of $750 million, here’s why.
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Abandoning The Property, Relinquishing Ownership
The owner of the largest hotel in the US outside of Las Vegas is abandoning the property. It has stopped paying its mortgage to Chase Bank, relinquishing ownership to its lender, Chase Bank.
“Park Hotels & Resorts has opted to cease payments on a $725 million loan, as the SF Business Times reports today, essentially surrendering over 2,900 hotel rooms and hospitality facilities to its lender. This includes the 1,921-room Hilton San Francisco Union Square, which is San Francisco’s largest hotel, occupying an entire city block, and one of the country’s largest hotels outside of Las Vegas.” – SFist
Chase will likely bring in a management company to operate the property until new ownership can be secured.
Why Did They Let It Go?
Citing reasons that included abandoned office buildings, a lower return-to-office rate than peers, fewer conventions through 2027, and poor street conditions, Park Hotels’ management decided it would be better to take a loss than continue to operate the hotel.
Looking at those in order, abandoned office buildings will plague this country following the pandemic and a return-to-office that fails will expedite the process. I have two businesses and both are run remotely. We had an office overseas and shut it down. We have an office the two businesses now share but it’s much smaller than a traditional setting might have been. I can’t foresee an environment where we’d expand to a bigger space Ben with double the staff; other businesses might see the same conclusion.
The next two concerns are specific to the San Francisco market. The convention business as a whole is not problematic, it’s plenty busy. In fact, many are sold out and more seem to be cropping up – just not in San Francisco. It’s likely because of the second reason as well, the maintenance of the streets. It’s no surprise that a city that needs a human fecal matter map – not so that the city can clean it up but so that residents can avoid it – has soured a desire to visit.
Some businesses like Target have taken to extreme measures to protect their inventory.
“A TikTok video has gone viral showing the health and beauty aisle of a Target in San Francisco almost fully encased in glass, as a countermeasure to prevent shoplifting. The locked display cases run the length of the aisle on both sides, with doors extending from the bottom shelves to the top.” – Business Insider
While Parks hasn’t elaborated on what “street conditions” might mean, it seems unlikely the firm abandoned three quarters of a billion dollars over potholes.
What Will The Future Hold For The Hilton Union Square, And San Francisco?
There’s no question another operator will take over what will be assuredly an advantageous deal for the massive property. Chase will sell it cheap to get a new client in the door (I am sure they are already speaking with some who qualify) and get someone new to pay the mortgage.
That said, the brand will not necessarily be Hilton and my suspicions are that the operator will either be a foreign competitor looking for a landmark property in the States, or a small chain looking for a big splash. Why won’t it remain a Hilton or become a Marriott, for example? The new owner will have some of the same fears about occupancy as the last, adding costs (even though those chains have a huge network of loyal guests) extending the payback period and adding an onerous royalty to the financials.
Additionally, brands may be leery to jump into the San Francisco market as tech firms head elsewhere and more continue to work from home.
Conclusion
The owners of the largest hotel outside of Las Vegas, the Hilton Union Square in San Francisco have stopped making its mortgage payment to Chase Bank citing current and future concerns. The owners are doubtful that the convention market the hotel relies on will return and the city, in general, has fewer workers in the city and an undesirable street condition. The move will forfeit ownership of the estimated $1.5 bn property with about half that remaining on the note.
What do you think? Will we see other large real estate owners make similar moves? Is this concern central to San Francisco, California, or large cities across the country?
Source: Live and Let's Fly
