(Bloomberg) -- Park Hotels & Resorts Inc. has stopped making payments on a loan tied to the Hilton San Francisco Union Square and the Parc 55 San Francisco, two of the city’s largest hotels, dealing another blow to a downtown struggling with remote work and mounting public safety concerns.
Park is working with servicers on the $725 million loan to determine the best path forward for the 1,921-room Hilton property and the 1,024-room Parc 55 hotel, according to a statement Monday. The company expects that it will eventually remove the hotels from its portfolio.
“Now more than ever, we believe San Francisco’s path to recovery remains clouded and elongated by major challenges,” Chief Executive Officer Thomas Baltimore said in the statement. The city faces “record high office vacancy; concerns over street conditions; lower return to office than peer cities; and a weaker-than-expected citywide convention calendar through 2027.”
The last few years have been tumultuous for hotels, which were battered by early Covid lockdowns. While leisure travel has enjoyed a robust rebound, business trips have been slower to recover, putting stress on big properties in urban areas.
San Francisco hotels have been especially vulnerable. The city’s office market has seen occupancies plummet, as tech employers embrace work-from-anywhere models and cut back on office space, and startups started worrying about their ability to raise new money. The city itself is facing worsening budget challenges, with the majority of residents saying San Francisco is on the wrong track.
Read More: Bank Turmoil Collides With Tech Slump in Battered San Francisco
The San Francisco Travel Association estimates that the area will get 23.9 million visitors this year, down from 26.2 million in 2019.
That’s led to falling demand for hotels. Occupancy rates for San Francisco hotels were just under 70% in the first four weeks of May, according to lodging data provider STR. By comparison, New York City hotels were 86% full during the same period.
In the case of the Park properties, stopping payments on the non-recourse loan, which was funded through the commercial mortgage-backed securities market and matures in November, will remove a drag on the company’s balance sheet and operating performance, according to the statement.
(Updates with lodging data, tourism figures starting in sixth paragraph.)
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