The owner of the Hilton San Francisco Financial District hotel has been issued a termination notice by its lender after failing to pay more than $100 million worth of debt for the second time in two years, according to a Securities and Exchange Commission filing.
The owner, Justice Operating Co., a subsidiary of Portsmouth Square Inc., failed to meet an extended deadline of Jan. 1 to pay back a remaining total balance of around $106 million on a mortgage loan and mezzanine loan, according to the SEC filing.
The termination notice allows the lender to foreclose on the property, the latest sign of financial trouble for the owner that first defaulted on its debt in January 2024. The hotel owner took out the loans from Bank of America in 2014.
The 544-room, 27-story hotel at 750 Kearny St. on the border of Chinatown and the Financial District, joins a spate of large downtown properties that are unable or unwilling to pay off maturing loans taken out before the COVID-19 pandemic hit in 2020, upending the fortunes of the hospitality sector.
Park Hotels & Resorts stopped making payments back in 2023 on a $725 million loan for the Hilton San Francisco Union Square and the Parc 55 San Francisco. Those hotels, the city's largest, were hit yet again in 2024 by a citywide hotel worker strike that began in late September, causing numerous cancellations and ultimately prompting Moody’s Ratings to downgrade the loan. The Four Seasons Hotel San Francisco at Embarcadero faced the auction block in October 2024, after its owner, Westbrook Partners, fell behind on payments on a $72.5 million loan.
Rising wages and other costs were top issues for hotel management companies in 2024, as hospitality companies continued to face headwinds. As hotel managers saw fewer paths to growth with a stunted transactions environment, many leaned on mergers and acquisitions to both grow their portfolios and their talent.
But the owner of the Hilton Financial District isn’t ready to give up just yet. Justice “will endeavor to refinance the aforementioned loans as soon as possible or seek alternative solutions to resolve this situation,” according to the SEC filing.
It explained that “refinancing the company’s hotel debt has been extremely challenging due to obstacles beyond the company’s control.”
The Hilton San Francisco Financial District opened in 1971, operating as a Holiday Inn until 2005. The building totals about 323,000 square feet, CoStar data shows, and was acquired by Portsmouth in 2013 for an undisclosed amount.
The San Francisco Nob Hill-Wharf submarket is comprised of 15,000 rooms spread across 138 hotels, roughly a third of the San Francisco-San Mateo market's total room inventory, according to CoStar data. Over half of the hotel inventory consists of upper-tier class hotels. No new hotels have entered the submarket since 2018, and hotel inventory is declining.