A $725 million loan supporting San Francisco’s two largest hotels has been downgraded as the city’s hospitality market keeps struggling.
Moody’s Ratings downgraded the ratings on five classes of commercial mortgage-backed securities deal, Hilton USA Trust 2016-SFP. The loan in the CMBS deal is backed by the 1,921-room Hilton San Francisco Union Square, and the 1,024-room Parc 55 San Francisco, also a Hilton hotel.
The loan on the two hotels was placed in special servicing when owner Park Hotels & Resorts failed to continue making payments on the loan in May 2023. It then also failed to pay off at its maturity a year ago. The hotels have struggled since the coronavirus pandemic hit in 2020, reporting annual losses in 2020-2022, according to CMBS data.
The properties' net cash flow rebounded in 2023. However, CMBS servicer commentary indicates 2024 will see another loss — expecting it to reach $30 million.
This year’s expected loss is due to lower year-over-year group business, which has suffered in part because of a citywide hotel worker labor strike that began in late September. The strike has caused numerous cancellations and disruptions at the properties, according to Moody’s.
This month, striking hotel workers agreed to a new five-year contract with Marriott-branded hotels. However, labor negotiations are still ongoing with Hilton and other hotel operators.
Representatives of Park Hotels & Resorts declined to comment to CoStar News for this story.
While the company still holds title to the hotels, it is no longer in control of the properties. Michelle Russo, founder and CEO of Hotel Asset Value Enhancement in Providence, Rhode Island, was appointed as receiver on the properties last fall. Russo did not respond to a request for additional information.
The special servicer on the loan reported that purchase offers are being reviewed on the two hotels, but no contract is in place, according to CMBS data.
Recent credit ratings reports from CMBS bond rating firms have estimated the value of the hotels at less than $600 million — almost $1 billion less than their appraised value in 2016 of $1.54 billion.