San Francisco's two largest hotels have received a new valuation that's off more than $1 billion from their pre-pandemic pricing as the city's hospitality market remains in a deep state of recovery.
A recent credit report from Kroll Bond Rating Agency values the 3,000-room hotel portfolio consisting of the Hilton San Francisco Union Square and Parc 55 at $533 million, representing a 65% drop from the portfolio's $1.56 billion valuation in 2016, when Park Hotels & Resorts acquired the hotels through a $725 million loan with JP Morgan Chase.
Last June, the Virginia-based hotel operator ceased making payments on debt obligations related to the loan that matured in November, according to previous reporting by CoStar News. Eastdil Secured has been tapped to sell both hotels by Sept. 1, or they will go into foreclosure.
Park Hotels did not respond to a request to comment from CoStar News.
The portfolio has not generated positive cash flow since 2020, according to Kroll's report. For the 12-month period ending March 2024, the hotels posted an occupancy rate of 52% and a cash flow deficit of $15.7 million. During that time, the Union Square hotel had an occupancy rate of 59% and average daily rates of $251 while Parc 55 had 43% occupancy and average rates of $246.
San Francisco’s hospitality market of today looks different than when Park Hotels acquired the hotels in 2016, with current occupancy levels of 64% off from 86% about eight years ago, according to CoStar data. Corporate travel has yet to recover and will likely remain muted as many local technology companies embrace remote and hybrid work schedules.
The 1,921-room Hilton San Francisco Union Square is the largest hotel in the city, followed by the 1,024-room Parc 55. Park Hotels also 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.
Pricing Shift
It is unlikely the hotels will fetch a price close to their 2016 appraisal, according to reports; that nearly $1.6 billion price tag worked out to about $520,000 per key. In one of San Francisco's priciest hotel transactions in recent years, the Hotel Zoe Fisherman’s Wharf sold for $309,955 per key last year, and a potential buyer of the Park Hotels portfolio would need to factor in renovation costs.
Prior to the COVID-19 pandemic, hotels regularly traded hands in San Francisco for more than $500,000 per key, according to CoStar data. In a notable example, the 2010 sale of Le Meridien fetched $1.1 million per room.
Elsewhere in California's Bay Area, Park Hotels & Resorts recently shut down one of its longtime properties near the newly rebranded San Francisco Bay Oakland International Airport.
The company notified the Port of Oakland that it will close the 360-room Hilton Oakland Airport in August after 56 years in business as the area's hospitality performance struggles to catch up to its pre-pandemic levels. Park Hotels & Resorts operates the property on land owned by the Port of Oakland.
In a bright spot for the Bay Area's hospitality market, three major sporting events set to take place in the region in the next two years are expected to net the region more than $1 billion in economic output, according to a report commissioned by the Bay Area Host Committee.
The report said the FIFA World Cup, the NFL's Super Bowl LX and the NBA's All-Star Game could collectively bring $1.4 billion in spending to San Francisco and surrounding cities.