San Francisco’s Hotel Industry in Crisis: Hilton Parc 55 and Hilton San Francisco Union Square Lose $1 Billion in Value

Tourism Decline and Financial Strain: San Francisco’s Largest Hotels Struggle with Record Delinquencies and Falling Occupancy Rates

San Francisco’s hotel industry, once a cornerstone of the city’s vibrant tourism sector, is now grappling with a severe financial crisis. The Hilton Parc 55 and Hilton San Francisco Union Square, two of the city’s largest hotels, have experienced a dramatic collapse in value, losing a combined total of $1 billion. According to the Kroll Bond Rating Agency, the value of these properties has dropped to $553.8 million, underscoring the depth of the sector’s current troubles.

The downturn in hotel fortunes is mirrored by a significant rise in delinquency rates for commercial mortgage-backed securities (CMBS) loans in the industry. Real estate analytics firm Trepp reports that the delinquency rate for these loans surged to 41.6% in June, a sharp increase from 5.7% the previous year. This spike highlights the financial pressures mounting on hotel operators in San Francisco.

The city’s tourism sector has struggled to bounce back to pre-pandemic levels, unlike other regions that have seen a quicker recovery. Anna Marie Presutti, interim president of the San Francisco Travel Association, described 2024 as particularly challenging and projected that a full recovery in visitor numbers might not occur until 2028 or 2029.

Data from CoStar Group reveals a 22% decline in weekend hotel occupancy in the San Francisco-San Mateo area since 2019, in stark contrast to the 4% decline nationwide. Contributing factors include high living costs, open-air drug markets, a growing homeless population, and increasing crime rates, which have all deterred tourists from visiting the city.

The strong U.S. dollar has also played a role, leading Americans to travel abroad and discouraging international visitors, particularly from China, due to economic uncertainties. Business travel, a critical revenue driver for hotels, has also been slow to recover. Major tech companies such as Google and Meta have shifted their events away from San Francisco’s Moscone Center, leading to a decrease in both events and hotel bookings. The San Francisco Travel Association anticipates a 26% reduction in events and a 31% drop in room nights at the Moscone Center this year compared to last.

The financial strain on the industry is also impacting hospitality workers, many of whom have seen their hours reduced and are seeking additional employment. Contracts for approximately 10,000 hotel workers in the Bay Area are set to expire soon, with 3,000 employees voting to authorize a potential strike.

In response to these financial challenges, real estate investment trust Park Hotels & Resorts has removed the Hilton Parc 55 and Hilton San Francisco Union Square from its portfolio. CEO Tom Baltimore noted that this decision has notably improved the company’s financial metrics and suggested that the San Francisco and Los Angeles markets are likely to lag behind for some time.

The relocation of major tech conferences to other cities, such as Las Vegas, has further diminished the number of business travelers who might have extended their trips to enjoy the Bay Area. However, there are signs of potential recovery. The San Francisco Travel Association has reported an uptick in European vacationers returning to the city, as well as increasing numbers of visitors from India.

Despite the severe challenges facing San Francisco’s hotel industry, there is a glimmer of hope. Alex Bastian, CEO of the city’s hotel council, remains optimistic about the industry’s future. He believes that San Francisco is making progress in addressing its issues and is hopeful that the city will soon regain its status as a premier West Coast destination.