The borrower on $97 million in debt tied to Hilton San Francisco Financial District, a 544-key hotel, has defaulted, according to a filing with the Securities and Exchange Commission. The failure to make loan payments is the latest sign of financial trouble for a hospitality property in San Francisco.
Justice Operating Co., a subsidiary of Portsmouth Square, defaulted on two loans at the beginning of the year when they matured, the filing said. The loans originated in January 2014 and were issued by Bank of America.
The loans transferred into special servicing in October after the borrower indicated it needed assistance in making payments, according to CoStar data. The borrower and issuer are in ongoing discussions for a resolution to pay back the debt, the filing said.
The 26-story Hilton San Francisco Financial District opened in 1970 and totals 323,000 square feet, CoStar data shows. It was acquired by Portsmouth in 2013 for an undisclosed amount, and the property is currently valued at $175 million.
Hilton and Portsmouth did not respond to requests for comment.
Other San Francisco hotels face uncertain futures. Hilton San Francisco Union Square and Parc 55 are currently looking for buyers while they are in receivership, according to previous reporting by CoStar News.
The San Francisco Nob Hill/Wharf hospitality market is large and contains around 15,000 rooms spread over 137 properties, according to CoStar. The market has reached an occupancy of 68.3% in the past 12 months. This is a significant turnaround from the initial years of the pandemic where occupancy hovered around 33% and sank to a low of 18%. However, the measurement is still down from the pre-2020 levels that were around 85%.
The larger San Francisco/San Mateo market remains one of the least recovered hotel markets in the United States, according to CoStar analysis.
“Corporate travel is muted due to many of the market's tech companies changing office utilization policies,” the analysis said. “The delayed return of international visitors has also impacted recovery.”
The market might get a boost from major sporting events taking place in coming years. San Francisco is slated to host the 2025 NBA All-Star Game at Chase Center, and the region will host the FIFA World Cup as well as the Super Bowl in 2026.