9 ms·

Hotel Owners Start to Write Off San Francisco as Business Nosedives

74 points by rgrieselhuber 3y ago

throwawaaarrgh 3y ago
https://archive.is/cs7ul https://archive.is/cs7ul
0zemp3c 3y ago
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ghastmaster 3y ago
Wolf Richter rips on this article pretty hard: https://wolfstreet.com/2023/06/12/ive-had-it-with-stupid-stuff-about-hotels-in-san-francisco-park-hotels-wall-street-screwed-shareholders-bond-fund-holders-and-pension-funds-but-blame-san-francisco/ https://wolfstreet.com/2023/06/12/ive-had-it-with-stupid-stu... > Park Hotels failed to pay off a $725 million interest-only non-recourse mortgage that matured last November. The mortgage was secured by two run-down mega-hotels in San Francisco, the 1,921-room Hilton San Francisco Union Square and the 1,024-room Parc 55 San Francisco. > Park Hotels only owns the properties. The hotels themselves are operated by other companies, and when Park Hotel defaults on a mortgage and walks away from the property, it means ownership of the property will change. That’s all it means for the hotel. The operating company remains the same. > Park Hotels has been a catastrophic nightmare for retail investors. The misdeeds that sank Park Hotels’ shares didn’t happen on the streets of San Francisco – as the company ridiculously alleged – but in the C-suite of Park Hotels and on Wall Street. And its investors and now the holders of the CMBS are getting ripped off.
- prepend 3y ago
  > run down These aren’t run down hotels. These are both rated 4.2 [0, 1] and while aren’t the greatest in the world are both Hiltons and decent hotels. The criticism doesn’t change the nature of the original article in that San Francisco is less good as it once was and as a result businesses are defaulting on pretty big things rather than invest in keeping them up. The inaccurate language seems to have a “everything’s fine here” kind of vibe to me. [0] Hilton San Francisco Union Square (415) 771-1400 https://maps.app.goo.gl/EPnQC4pbbwRKNjNh9?g_st=ic https://maps.app.goo.gl/EPnQC4pbbwRKNjNh9?g_st=ic [1] Parc 55 San Francisco - a Hilton Hotel (415) 392-8000 https://maps.app.goo.gl/p9SprpPdGZxzbejf8?g_st=ic https://maps.app.goo.gl/p9SprpPdGZxzbejf8?g_st=ic
  - zoky 3y ago
    The hotels may or may not be themselves run down, but there's also the neighborhood to consider, especially when you're talking about San Francisco. I know someone who used to travel to SF for work a lot, like 10-12 times a year. He had a favorite hotel there that was a block and a half away from his office. But every single time, he'd rent a car, just to drive from the underground parking at his hotel to the underground parking at work. It was simply safer than walking.
    - paulcole 3y ago
      It likely felt safer than walking but there is a 0% chance that a 1.5 block walk through San Francisco was truly more dangerous than a 1.5 block car ride. It’s much more likely that neither was dangerous at all.
      - jojobas 3y ago
        Feeling of danger is subjective, I can easily imagine a car ride along shit-infested sidewalks and deranged homeless people feels less dangerous (and icky) than walking.
        zoky 3y ago
        I mean, okay, but don't you think there's generally a correlation between “feeling of danger” and “actual danger”?
        jojobas 3y ago
        I'm not arguing with you, I'm arguing with other people here who apparently have no problem walking on shit, syringes and whatever else as long as loitering delinquents don't "look at them crossways".
        zoky 3y ago
        Ah, gotcha, I see what you’re saying. I guess I’d just say that you seem to be implying that the human instinct for perception of danger is not really tied to actual danger. And while one could argue that in the modern day that may be true, I think there’s something to be said for the fact that our instinctual ability to perceive even potential danger has gotten us this far.
- fallingknife 3y ago
  They didn't "fail to repay." Nobody ever repays this type of loan. They failed to refinance. And the fact that no one would refinance their $725 million loan means that the property has seriously declined in value.
  - evgen 3y ago
    It appears that the only thing that has declined here is the free money support for the fantasy valuation being claimed by the REIT. There are a lot of reasons that hundreds of billions in commercial real estate loans are going to be written off in the next few years and the original article mentioned none of them...
    - fallingknife 3y ago
      Apparently it wasn't a fantasy valuation because the banks lent against it. It is now a fantasy valuation because the properties have massively declined in value.
      - hef19898 3y ago
        Banks loaned subprime mortgages, enough actually to tank the global economy. Banks loaned for Musk's Twitter purchase. Free money tends to move the risk assessment done by banks in not a good way. Just ask SVB.
        ufo 3y ago
        FWIW, SVB didn't go broke because of subprime loans. They had a bank run.
        Fervicus 3y ago
        They mismanaged their risk. You make it sound like they did nothing wrong.
        3y ago
- deleted 3y ago
  [deleted]
- avsteele 3y ago
  Thanks for posting this but, his article doesn't make a lot of sense to me. If he could show the property owner was having equal similar difficulties in other cities his point would be stronger. As it is, It isn't even clear what he's saying. Also, Hilton Union Square SF didn't seem 'run down' to me. I just had a conference there two weeks ago. The area around the hotel seems pretty quiet though... WSJ article seems fine as these things go.
- the_mitsuhiko 3y ago
  > The hotels themselves are operated by other companies, and when Park Hotel defaults on a mortgage and walks away from the property, it means ownership of the property will change. That’s all it means for the hotel. The operating company remains the same. I'm curious about this part. Is that actually true? That sounds like the contract that the management company has is with the lender to begin with rather than Park Hotels? Or is the contract structured in a way that even if Park Hotels sells, the new owner needs to honor that existing contract?
  - Incipient 3y ago
    I would expect there is some clause in their contract about novating it on transfer of the property ownership. Properties do get transferred, and it would be beyond insane not to have such a clause. It's not as if the operator of thy hotel can just rent another space down the road. But not my industry, just seems like it would be reckless from the outside.
    - the_mitsuhiko 3y ago
      I'm sure the contract has terms that determine what happens on a sale, return to lendor or whatever else is going on. But I'm not convinced that the assumption that "nothing changes for the management company" is such an obvious assumption.
- nroets 3y ago
  So Park Hotels bought a call option on SF real estate. Surely they and their counter parties did some modeling and stress tests.
- deleted 3y ago
  [deleted]
- jhgfjhgfjhfgjhg 3y ago
  This is wrong. The new owner can select a new operating company.
- umrcumrcu 3y ago
  That article is full of fallacies. Brick and mortars in other large cities aren't closing like they are in San Francisco, especially not in the the epicenter of the financial district. Hotel rates in other cities have reached record highs while SF has declined even with inflation.[1] [1] https://www.otainsight.com/resources/blog/us-hotel-pricing-top-10-destinations https://www.otainsight.com/resources/blog/us-hotel-pricing-t...
- fundad 3y ago
  The Hilton is absolutely run down. It's a very old building with some expensive decor inside. Walking in through an archaic vestibule and you see how dated it is. Look at the room photos in that link. The bathrooms have "granite" vanities but the floors and wall covering are so dated. Even before COVID, other Bay Area cities have been building up convention space to compete with SF. SF hotels kept raising their prices and wonder where the customers are...
gigatexal 3y ago
Me thinks similar things are going to happen (if they're not already) to Portland. I grew up there and then worked on SW 5th Ave from 2013 to 2018 and loved it. Since then I've been in Germany working. I went back last year to see family and my old "stomping grounds" near my old office and other places that I'd love to go eat at and such were overrun with folks with substance abuse issues, homelessness, etc., and many of the food carts and businesses/restaurants that I used to get fat at (I put on so much weight eating while going into the office it was hilarious) have closed and moved into suburbs or to other locations. SW 5th and surrounding areas near the waterfront used to be the "nice" parts of town with very little open drug use, homeless camps, etc. (Don't get it twisted, I am 100% for more taxes, charity, efforts to help people get housed, get off drugs, whatever they need) But since returning the volume of people who need help is clearly turning the city into a place where businesses are reticent to invest in.
- onetokeoverthe 3y ago
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- xrd 3y ago
  It's going to be interesting with the new ordinance to outlaw camping from dawn to sundown. If you camp during those hours, you face jail time. The theory is probably that this will separate hard core drug users from homeless people who aren't willing to go into a shelter. That'll be an interesting experiment.
  - courseofaction 3y ago
    A cruel experiment that will neither relieve suffering nor address its cause. America is insane.
    - BobbyJo 3y ago
      When it comes to substance abuse, there is literally nothing a third party can legally do. Short of arresting you for committing a crime, or commiting you as a self harm risk (a worse experience than jail) your rights under the US constitution prevent you from being forced to do pretty much anything.
smallerfish 3y ago
I happened to be digging around hotel trade publications yesterday (before deciding that the PMS space is a crowded mess with too many incumbents and a nightmare of necessary integrations), and found this, which may back up the article somewhat: > The steepest RevPAR declines were seen [for the last week in May] in San Francisco (-15.6% to US$108.49) and Orlando (-12.8% to US$109.48). https://www.hotel-online.com/press_releases/release/str-u-s-hotel-results-for-week-ending-3-june/ https://www.hotel-online.com/press_releases/release/str-u-s-...
- algo_trader 3y ago
  Did you come across any data on (up to date) construction costs ?
- derda 3y ago
  What kind of PMS integrations did you look for? The space is horrible (especially so after Oracle bought Micros-Fidelio) but there are a ton of companies offering interfacing middlewares that connect to a ton of different PMS systems and offer a unified API.
  - mar225 3y ago
    Any suggestions on which middleware companies to look at if one was interested in learning more about what services they offer.
- Kon-Peki 3y ago
  At the right purchase price, $108 is excellent. Don’t forget that the guy who bought a bunch of distressed real estate in Detroit is now a multi-billionaire, owns a few sports teams, and wrote a public FU letter to Lebron in comic sans…
x3874 3y ago
[flagged]
- CPLX 3y ago
  Have you actually been to NYC? It’s completely thriving.
  - caeril 3y ago
    NYC has the unique distinction among Democrat-run large cities of having a well-funded and well-staffed police authority that is not (yet) hamstrung by political interference. The NYPD is actually feared and respected by would-be criminals, which is a far cry from SFPD, PPB, et. al.
- deleted 3y ago
  [deleted]
HWR_14 3y ago
Forgive my redundant point being repeated from a few days ago: Park Hotels borrowed $725MM interest only and bought property. They haven't been building equity. I believe these mortgages are non-recourse (at worst they can foreclose, not go after you for any extra money). If the property is worth less than the note, there is no reason not to send in the keys. I've seen the same news in the past couple of months in other cities that have seen a run up in recent years.
- jgalt212 3y ago
  > They haven't been building equity. Per the docs, yes. But any capital improvements made are building equity and would affect the LTV of the loan when it comes time to refinance (or default).
  - bombcar 3y ago
    The theoretical use of interest only is to acquire the property and upmanage it to increase rents (or for a hotel, utilization and nightly stays) since the value is directly based on monthly incomes. Then refinance and-or sell.
    - jgalt212 3y ago
      > increase rents Class A office space rents for much more than Class B. You can convert (usually, but not always) Class B to Class A with capital improvements.
- bombcar 3y ago
  A non-recourse loan means the lender is also “invested” in the property somewhat. That can be a good thing. A non-recourse interest only loan is a bit batshit however.
  - Panzer04 3y ago
    It's standard for corporate loans. The point of a loan is to pay interest for cash, and it's not really helpful outside of consumer lending to amortise the loan principle over the term rather than simply pay the full amount when due (usually funded by refinancing and simple cash on hand)
CalRobert 3y ago
As someone who absolutely ADORED living in Berkeley in 2009 (by Ashby bart specifically) but was priced out (and eventually moved abroad entirely) it's hard not to feel some schadenfreude.
randunel 3y ago
Has San Francisco become that bad? My father lives in the city, but I've never heard him complain about the state of things.
- dmix 3y ago
  IDK about living there, it's been ~6-7yrs since I last did, but San Francisco can be quite shocking to tourists/new arrivals (this article is about hotel stays which is a combo of tourists and business travelers). I remember feeling that when I first visited and the first thing I saw coming out of BART from the Airport was someone openly pissing next to the subway entrance, which contrasted weirdly with the beautiful views. I wrote it off at first until I saw it happen multiple times that week, then later just some guy sitting next to hit wall with his dick out. Later that same visit the girl I was with was robbed and the police never showed up after 3hrs waiting (apparently not a high priority). Then there's the garbage and generally griminess of it. People are claiming it's gotten worse since then, which I can't personally attest to. It's not like being a tourist/visitor in Manhattan or Austin/San Antonio or Chicago. Maybe I'm biased having grown up in Toronto which is clean/safe.
  - piva00 3y ago
    Last time I've been to SF was in 2015, I get out of the BART train at Market St. early afternoon, and on the corridor to the exits there are 2 people, one lying on the floor, another shooting heroin. Out of the station, going to cross Market St. to grab something to eat, someone stops behind me while I'm waiting for the traffic light on the zebra crossing and start to scream, loud as I'd never heard someone scream in my life. Two days later I ended up inadvertently walking by Tenderloin and got fucking harassed to the point where I paced very briskly out of there. > It's not like being a tourist/visitor in Manhattan On this same trip some 2 weeks later I arrived in NYC, got to Jamaica Station from JFK to catch the metro, going upstairs on the elevators I take a round for the next flight of escalators and there's someone squatting close to the railing, taking a shit, naked, right there while dozens of people are passing by. Later in Manhattan I'm staying in Hell's Kitchen, very close to PABT, a guy tries to mug me when I'm going to a 7-11, I get away from the attempt just to get to a corner store and see a fight breaking out... Just giving some anecdotes of just one of the trips I made to the USA, I had many other odd encounters during other trips, I have never experienced much of that (apart from the mugging when I still lived in Brazil) in other parts of the world I've lived at or traveled to.
buro9 3y ago
They're already written off SF decades ago, has no one ever stayed at the Whitcomb?! SF has some of the worst hotels I've seen anywhere. So much hasn't been updated for decades and it definitely shows.
- 0xbadcafebee 3y ago
  I've stayed in several 4-stars in SF in the past two years, and while none were bad, they are clearly still suffering from staffing issues and spreading things thinly due to fewer bookings. If you have a choice to stay in SF or somewhere else, somewhere else is usually nicer. Crime and homelessness has turned SF from that quaint city by the bay, to that quaint city you don't feel safe walking around in. With the loss of convention tourism and the slow erosion of the SV gravy train there's zero reason left to invest in SF. Expect the decline to continue unabated. I bet in 10 years SF will once again be an affordable place to live.
- draw_down 3y ago
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- rsynnott 3y ago
  That's arguably actually a sign of a hot hotel market; if any room will rent, then, really, why bother updating anything? (Caveat: in many European cities with very hot hotel markets, you'll see a lot of shiny new hotel rooms, but it's largely because hotels are redesigning themselves to put more rooms in the same space. This seems way less common in the US; I think Americans are way more bothered about how big the rooms are.) Of course, covid disrupted that to an extent, particularly for cities which were heavily reliant on business travel for their hotel business (I'd be a little surprised if business travel _ever_ returns to pre-covid rates). I'm in SF occasionally for work, and, yeah, the hotels are notably, almost impressively, dated. Beyond the presence of the obligatory flatscreen TV, most of the rooms probably looked much the same in the 80s. If the market actually _is_ cooling down severely (based on the article, one could be forgiven for thinking this is more a case of a company abruptly discovering that property values don't automatically go up forever, which is a lesson that property investors tend to learn every couple of decades) then you'd actually expect that to change, as hotels have to compete on the product being offered rather than just taking a "look, here's a room, there are no rooms, obviously you will rent it" approach.
Varqu 3y ago
Congrats to SF politicians (and people who voted for them) for ruining this city.
- CoastalCoder 3y ago
  I'm sure most of them mean well. I think it's a hard problem to solve. AFAICT, it's a topic where different political ideologies suggest very different (and largely incompatible) solutions.
- draw_down 3y ago
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- HKH2 3y ago
  The cell will burst and the contents of the cell will move to other cells.
- muglug 3y ago
  TIL that SF politicians created the COVID pandemic and drove the WFH policies that emptied out the business district. SF suffers from many of the same problems that other much-more-conservative cities suffer from, but you don’t hear about them as much because it doesn’t fit a narrative. I live in NYC, and visit SF often for work. I’m fascinated in the similarities and difference between the cities. For example, pre-pandemic SF public transport had half the daily ridership per capita that NYC had, implying workers there were much more dependent on cars. That, combined with the much lower housing density, meant that white-collar workers were much less interested in returning to the office. NYC and SF have a similar unhoused percentage, yet one seems worse. Maybe a bunch of that is due to laissez-faire policing? But it could also be due to SF’s climate that makes being out on the street year-round slightly more doable. Downtown has particularly low housing density. How much of that is due to SF government, and how much is due to big tech paying ridiculously high rents for buildings?
  - coolhand2120 3y ago
    Do you have any citations to back up “SF is just as bad as X city?” I travel a lot as work out of a SF office. It really is a lot worse than say Los Angeles which is a high bar to cross. I think the biggest difference between SF and other cities is that SF supports criminals. Car break ins are not investigated. Shoplifting is legal. Drug use is effectively legal. Physical assault/robbery is effectively legal for some cohorts. Criminals come to SF for these reasons. It’s lawlessness supported by the city council. And they’re currently talking about giving every black resident $6M dollars because of the California slave trade, mind you slavery was never in CA. But this is what the city council is interested in. These people are interested in exacerbating the problem, not fixing it. I keep thinking there’s some threshold, but there isn’t, SF seems destined to become like Detroit.
pixel3234 3y ago
Town hall should house homeless in hotels as NYC and UK does. It would solve two problems and boost local economy!
- mc32 3y ago
  Turning upscale hotels into SROs isn’t a way to regain valuation.
  - pixel3234 3y ago
    Not SROs! Hotels should be fully compensated at commercial rate! Maybe slight discount for long term stay could be negotiated. Even $500 per night would be cheaper than current policy!
    - briandear 3y ago
      You want taxpayers to pay $500 per night for homeless? I would be furious to be paying confiscatory taxes and have those taxes go to literally putting zombie drug addicts in hotels. Very unfair to those of us that work hard to pay all those taxes. Perhaps build work camps in the Mojave instead and ship them there. Start making intentional homelessness arduous and you’ll see less of it. Prosecute illegal drug dealing and usage in public. Prosecute shoplifting. San Francisco has one do the largest homeless populations in the country. It’s because of the policies. Change the policies and many homeless will leave.
      - mhuffman 3y ago
        >You want taxpayers to pay $500 per night for homeless? I would be furious to be paying confiscatory taxes and have those taxes go to literally putting zombie drug addicts in hotels. If my memory is working they are paying about $60k a year per homeless person to address it now, which is $160+ per night now. Yes $500 is high, but the $165 is closing in on a "nice" hotel room per night now.
      - deleted 3y ago
        [deleted]
kubb 3y ago
Is this the Bay Area population of HN expressing their frustration that there are many homeless people in SF? These posts come up from time to time. I was there some 4 years ago, and I met some homeless folks for sure, but the city was nice.
- ciabattabread 3y ago
  Most of this site still believes Bob Lee of Cash was killed by a homeless guy.
  - mcculley 3y ago
    Did you run a poll? How did you arrive at this conclusion?
- losvedir 3y ago
  I can never tell if these things are SF residents expressing frustration, or people outside of SF expressing a sort of wishful spite. I sort of learned my lesson in taking these things at face value with that evolving story of the tech exec who was stabbed. That said, what did strike me as a little odd were a lot of comments on the Vision Pro threads about where if you walk around with it on outside, you'll be instantly mugged. That's just... not the case where I live in my Indiana suburb. I leave my front door unlocked, and have had no issues leaving my laptop visible on the seat of my locked car when I'm out and about. People here seem to take for granted some amount of low level violence and theft as normal, which shocks me. I don't know if comments like those come from Bay Area residents, but I sort of assumed so because I've thought that's where the user base here skews.
  - rsynnott 3y ago
    > That said, what did strike me as a little odd were a lot of comments on the Vision Pro threads about where if you walk around with it on outside, you'll be instantly mugged. I mean, as someone who visits San Francisco for work from time to time... I'm fairly sure that's not actually true? It's never felt particularly unsafe; it's just a normal largish city (albeit with an awful lot of homelessness).
classified 3y ago
So, AirBnBs only?
uudecoded 3y ago
I believe that SF hotel occupancy is down, but it's not for the typical reasons that are fanned around: there are numerous South San Francisco hotels that are MUCH cheaper, 15-20 minutes away, and have free shuttles to the airport (SFO). A lot of these SSF hotels are new and close to a quite a few ex-SoMa tech companies now in Oyster Point. Apropos of nothing, on a 3 day trip, I did see a man, minding his own business walking, get "ride-by" assaulted by a mentally ill bicyclist in the marina. I think this fits with what I'm hearing about not prosecuting that type of thing there. Other than that event, the areas in SF I saw seemed cleaner/safer than it was pre-covid.

74 points by rgrieselhuber 3y ago

throwawaaarrgh 3y ago

https://archive.is/cs7ul https://archive.is/cs7ul

0zemp3c 3y ago

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ghastmaster 3y ago

Wolf Richter rips on this article pretty hard: https://wolfstreet.com/2023/06/12/ive-had-it-with-stupid-stuff-about-hotels-in-san-francisco-park-hotels-wall-street-screwed-shareholders-bond-fund-holders-and-pension-funds-but-blame-san-francisco/ https://wolfstreet.com/2023/06/12/ive-had-it-with-stupid-stu... > Park Hotels failed to pay off a $725 million interest-only non-recourse mortgage that matured last November. The mortgage was secured by two run-down mega-hotels in San Francisco, the 1,921-room Hilton San Francisco Union Square and the 1,024-room Parc 55 San Francisco. > Park Hotels only owns the properties. The hotels themselves are operated by other companies, and when Park Hotel defaults on a mortgage and walks away from the property, it means ownership of the property will change. That’s all it means for the hotel. The operating company remains the same. > Park Hotels has been a catastrophic nightmare for retail investors. The misdeeds that sank Park Hotels’ shares didn’t happen on the streets of San Francisco – as the company ridiculously alleged – but in the C-suite of Park Hotels and on Wall Street. And its investors and now the holders of the CMBS are getting ripped off.

prepend 3y ago
> run down These aren’t run down hotels. These are both rated 4.2 [0, 1] and while aren’t the greatest in the world are both Hiltons and decent hotels. The criticism doesn’t change the nature of the original article in that San Francisco is less good as it once was and as a result businesses are defaulting on pretty big things rather than invest in keeping them up. The inaccurate language seems to have a “everything’s fine here” kind of vibe to me. [0] Hilton San Francisco Union Square (415) 771-1400 https://maps.app.goo.gl/EPnQC4pbbwRKNjNh9?g_st=ic https://maps.app.goo.gl/EPnQC4pbbwRKNjNh9?g_st=ic [1] Parc 55 San Francisco - a Hilton Hotel (415) 392-8000 https://maps.app.goo.gl/p9SprpPdGZxzbejf8?g_st=ic https://maps.app.goo.gl/p9SprpPdGZxzbejf8?g_st=ic
- zoky 3y ago
  The hotels may or may not be themselves run down, but there's also the neighborhood to consider, especially when you're talking about San Francisco. I know someone who used to travel to SF for work a lot, like 10-12 times a year. He had a favorite hotel there that was a block and a half away from his office. But every single time, he'd rent a car, just to drive from the underground parking at his hotel to the underground parking at work. It was simply safer than walking.
  - paulcole 3y ago
    It likely felt safer than walking but there is a 0% chance that a 1.5 block walk through San Francisco was truly more dangerous than a 1.5 block car ride. It’s much more likely that neither was dangerous at all.
    - jojobas 3y ago
      Feeling of danger is subjective, I can easily imagine a car ride along shit-infested sidewalks and deranged homeless people feels less dangerous (and icky) than walking.
      - zoky 3y ago
        I mean, okay, but don't you think there's generally a correlation between “feeling of danger” and “actual danger”?
        jojobas 3y ago
        I'm not arguing with you, I'm arguing with other people here who apparently have no problem walking on shit, syringes and whatever else as long as loitering delinquents don't "look at them crossways".
        zoky 3y ago
        Ah, gotcha, I see what you’re saying. I guess I’d just say that you seem to be implying that the human instinct for perception of danger is not really tied to actual danger. And while one could argue that in the modern day that may be true, I think there’s something to be said for the fact that our instinctual ability to perceive even potential danger has gotten us this far.
fallingknife 3y ago
They didn't "fail to repay." Nobody ever repays this type of loan. They failed to refinance. And the fact that no one would refinance their $725 million loan means that the property has seriously declined in value.
- evgen 3y ago
  It appears that the only thing that has declined here is the free money support for the fantasy valuation being claimed by the REIT. There are a lot of reasons that hundreds of billions in commercial real estate loans are going to be written off in the next few years and the original article mentioned none of them...
  - fallingknife 3y ago
    Apparently it wasn't a fantasy valuation because the banks lent against it. It is now a fantasy valuation because the properties have massively declined in value.
    - hef19898 3y ago
      Banks loaned subprime mortgages, enough actually to tank the global economy. Banks loaned for Musk's Twitter purchase. Free money tends to move the risk assessment done by banks in not a good way. Just ask SVB.
      - ufo 3y ago
        FWIW, SVB didn't go broke because of subprime loans. They had a bank run.
        Fervicus 3y ago
        They mismanaged their risk. You make it sound like they did nothing wrong.
        3y ago
deleted 3y ago
[deleted]
avsteele 3y ago
Thanks for posting this but, his article doesn't make a lot of sense to me. If he could show the property owner was having equal similar difficulties in other cities his point would be stronger. As it is, It isn't even clear what he's saying. Also, Hilton Union Square SF didn't seem 'run down' to me. I just had a conference there two weeks ago. The area around the hotel seems pretty quiet though... WSJ article seems fine as these things go.
the_mitsuhiko 3y ago
> The hotels themselves are operated by other companies, and when Park Hotel defaults on a mortgage and walks away from the property, it means ownership of the property will change. That’s all it means for the hotel. The operating company remains the same. I'm curious about this part. Is that actually true? That sounds like the contract that the management company has is with the lender to begin with rather than Park Hotels? Or is the contract structured in a way that even if Park Hotels sells, the new owner needs to honor that existing contract?
- Incipient 3y ago
  I would expect there is some clause in their contract about novating it on transfer of the property ownership. Properties do get transferred, and it would be beyond insane not to have such a clause. It's not as if the operator of thy hotel can just rent another space down the road. But not my industry, just seems like it would be reckless from the outside.
  - the_mitsuhiko 3y ago
    I'm sure the contract has terms that determine what happens on a sale, return to lendor or whatever else is going on. But I'm not convinced that the assumption that "nothing changes for the management company" is such an obvious assumption.
nroets 3y ago
So Park Hotels bought a call option on SF real estate. Surely they and their counter parties did some modeling and stress tests.
deleted 3y ago
[deleted]
jhgfjhgfjhfgjhg 3y ago
This is wrong. The new owner can select a new operating company.
umrcumrcu 3y ago
That article is full of fallacies. Brick and mortars in other large cities aren't closing like they are in San Francisco, especially not in the the epicenter of the financial district. Hotel rates in other cities have reached record highs while SF has declined even with inflation.[1] [1] https://www.otainsight.com/resources/blog/us-hotel-pricing-top-10-destinations https://www.otainsight.com/resources/blog/us-hotel-pricing-t...
fundad 3y ago
The Hilton is absolutely run down. It's a very old building with some expensive decor inside. Walking in through an archaic vestibule and you see how dated it is. Look at the room photos in that link. The bathrooms have "granite" vanities but the floors and wall covering are so dated. Even before COVID, other Bay Area cities have been building up convention space to compete with SF. SF hotels kept raising their prices and wonder where the customers are...

gigatexal 3y ago

Me thinks similar things are going to happen (if they're not already) to Portland. I grew up there and then worked on SW 5th Ave from 2013 to 2018 and loved it. Since then I've been in Germany working. I went back last year to see family and my old "stomping grounds" near my old office and other places that I'd love to go eat at and such were overrun with folks with substance abuse issues, homelessness, etc., and many of the food carts and businesses/restaurants that I used to get fat at (I put on so much weight eating while going into the office it was hilarious) have closed and moved into suburbs or to other locations. SW 5th and surrounding areas near the waterfront used to be the "nice" parts of town with very little open drug use, homeless camps, etc. (Don't get it twisted, I am 100% for more taxes, charity, efforts to help people get housed, get off drugs, whatever they need) But since returning the volume of people who need help is clearly turning the city into a place where businesses are reticent to invest in.

onetokeoverthe 3y ago
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xrd 3y ago
It's going to be interesting with the new ordinance to outlaw camping from dawn to sundown. If you camp during those hours, you face jail time. The theory is probably that this will separate hard core drug users from homeless people who aren't willing to go into a shelter. That'll be an interesting experiment.
- courseofaction 3y ago
  A cruel experiment that will neither relieve suffering nor address its cause. America is insane.
  - BobbyJo 3y ago
    When it comes to substance abuse, there is literally nothing a third party can legally do. Short of arresting you for committing a crime, or commiting you as a self harm risk (a worse experience than jail) your rights under the US constitution prevent you from being forced to do pretty much anything.

smallerfish 3y ago

I happened to be digging around hotel trade publications yesterday (before deciding that the PMS space is a crowded mess with too many incumbents and a nightmare of necessary integrations), and found this, which may back up the article somewhat: > The steepest RevPAR declines were seen [for the last week in May] in San Francisco (-15.6% to US$108.49) and Orlando (-12.8% to US$109.48). https://www.hotel-online.com/press_releases/release/str-u-s-hotel-results-for-week-ending-3-june/ https://www.hotel-online.com/press_releases/release/str-u-s-...

algo_trader 3y ago
Did you come across any data on (up to date) construction costs ?
derda 3y ago
What kind of PMS integrations did you look for? The space is horrible (especially so after Oracle bought Micros-Fidelio) but there are a ton of companies offering interfacing middlewares that connect to a ton of different PMS systems and offer a unified API.
- mar225 3y ago
  Any suggestions on which middleware companies to look at if one was interested in learning more about what services they offer.
Kon-Peki 3y ago
At the right purchase price, $108 is excellent. Don’t forget that the guy who bought a bunch of distressed real estate in Detroit is now a multi-billionaire, owns a few sports teams, and wrote a public FU letter to Lebron in comic sans…

x3874 3y ago

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CPLX 3y ago
Have you actually been to NYC? It’s completely thriving.
- caeril 3y ago
  NYC has the unique distinction among Democrat-run large cities of having a well-funded and well-staffed police authority that is not (yet) hamstrung by political interference. The NYPD is actually feared and respected by would-be criminals, which is a far cry from SFPD, PPB, et. al.
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HWR_14 3y ago

Forgive my redundant point being repeated from a few days ago: Park Hotels borrowed $725MM interest only and bought property. They haven't been building equity. I believe these mortgages are non-recourse (at worst they can foreclose, not go after you for any extra money). If the property is worth less than the note, there is no reason not to send in the keys. I've seen the same news in the past couple of months in other cities that have seen a run up in recent years.

jgalt212 3y ago
> They haven't been building equity. Per the docs, yes. But any capital improvements made are building equity and would affect the LTV of the loan when it comes time to refinance (or default).
- bombcar 3y ago
  The theoretical use of interest only is to acquire the property and upmanage it to increase rents (or for a hotel, utilization and nightly stays) since the value is directly based on monthly incomes. Then refinance and-or sell.
  - jgalt212 3y ago
    > increase rents Class A office space rents for much more than Class B. You can convert (usually, but not always) Class B to Class A with capital improvements.
bombcar 3y ago
A non-recourse loan means the lender is also “invested” in the property somewhat. That can be a good thing. A non-recourse interest only loan is a bit batshit however.
- Panzer04 3y ago
  It's standard for corporate loans. The point of a loan is to pay interest for cash, and it's not really helpful outside of consumer lending to amortise the loan principle over the term rather than simply pay the full amount when due (usually funded by refinancing and simple cash on hand)

CalRobert 3y ago

As someone who absolutely ADORED living in Berkeley in 2009 (by Ashby bart specifically) but was priced out (and eventually moved abroad entirely) it's hard not to feel some schadenfreude.

randunel 3y ago

Has San Francisco become that bad? My father lives in the city, but I've never heard him complain about the state of things.

dmix 3y ago
IDK about living there, it's been ~6-7yrs since I last did, but San Francisco can be quite shocking to tourists/new arrivals (this article is about hotel stays which is a combo of tourists and business travelers). I remember feeling that when I first visited and the first thing I saw coming out of BART from the Airport was someone openly pissing next to the subway entrance, which contrasted weirdly with the beautiful views. I wrote it off at first until I saw it happen multiple times that week, then later just some guy sitting next to hit wall with his dick out. Later that same visit the girl I was with was robbed and the police never showed up after 3hrs waiting (apparently not a high priority). Then there's the garbage and generally griminess of it. People are claiming it's gotten worse since then, which I can't personally attest to. It's not like being a tourist/visitor in Manhattan or Austin/San Antonio or Chicago. Maybe I'm biased having grown up in Toronto which is clean/safe.
- piva00 3y ago
  Last time I've been to SF was in 2015, I get out of the BART train at Market St. early afternoon, and on the corridor to the exits there are 2 people, one lying on the floor, another shooting heroin. Out of the station, going to cross Market St. to grab something to eat, someone stops behind me while I'm waiting for the traffic light on the zebra crossing and start to scream, loud as I'd never heard someone scream in my life. Two days later I ended up inadvertently walking by Tenderloin and got fucking harassed to the point where I paced very briskly out of there. > It's not like being a tourist/visitor in Manhattan On this same trip some 2 weeks later I arrived in NYC, got to Jamaica Station from JFK to catch the metro, going upstairs on the elevators I take a round for the next flight of escalators and there's someone squatting close to the railing, taking a shit, naked, right there while dozens of people are passing by. Later in Manhattan I'm staying in Hell's Kitchen, very close to PABT, a guy tries to mug me when I'm going to a 7-11, I get away from the attempt just to get to a corner store and see a fight breaking out... Just giving some anecdotes of just one of the trips I made to the USA, I had many other odd encounters during other trips, I have never experienced much of that (apart from the mugging when I still lived in Brazil) in other parts of the world I've lived at or traveled to.

buro9 3y ago

They're already written off SF decades ago, has no one ever stayed at the Whitcomb?! SF has some of the worst hotels I've seen anywhere. So much hasn't been updated for decades and it definitely shows.

0xbadcafebee 3y ago
I've stayed in several 4-stars in SF in the past two years, and while none were bad, they are clearly still suffering from staffing issues and spreading things thinly due to fewer bookings. If you have a choice to stay in SF or somewhere else, somewhere else is usually nicer. Crime and homelessness has turned SF from that quaint city by the bay, to that quaint city you don't feel safe walking around in. With the loss of convention tourism and the slow erosion of the SV gravy train there's zero reason left to invest in SF. Expect the decline to continue unabated. I bet in 10 years SF will once again be an affordable place to live.
draw_down 3y ago
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rsynnott 3y ago
That's arguably actually a sign of a hot hotel market; if any room will rent, then, really, why bother updating anything? (Caveat: in many European cities with very hot hotel markets, you'll see a lot of shiny new hotel rooms, but it's largely because hotels are redesigning themselves to put more rooms in the same space. This seems way less common in the US; I think Americans are way more bothered about how big the rooms are.) Of course, covid disrupted that to an extent, particularly for cities which were heavily reliant on business travel for their hotel business (I'd be a little surprised if business travel _ever_ returns to pre-covid rates). I'm in SF occasionally for work, and, yeah, the hotels are notably, almost impressively, dated. Beyond the presence of the obligatory flatscreen TV, most of the rooms probably looked much the same in the 80s. If the market actually _is_ cooling down severely (based on the article, one could be forgiven for thinking this is more a case of a company abruptly discovering that property values don't automatically go up forever, which is a lesson that property investors tend to learn every couple of decades) then you'd actually expect that to change, as hotels have to compete on the product being offered rather than just taking a "look, here's a room, there are no rooms, obviously you will rent it" approach.

Varqu 3y ago

Congrats to SF politicians (and people who voted for them) for ruining this city.

CoastalCoder 3y ago
I'm sure most of them mean well. I think it's a hard problem to solve. AFAICT, it's a topic where different political ideologies suggest very different (and largely incompatible) solutions.
draw_down 3y ago
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HKH2 3y ago
The cell will burst and the contents of the cell will move to other cells.
muglug 3y ago
TIL that SF politicians created the COVID pandemic and drove the WFH policies that emptied out the business district. SF suffers from many of the same problems that other much-more-conservative cities suffer from, but you don’t hear about them as much because it doesn’t fit a narrative. I live in NYC, and visit SF often for work. I’m fascinated in the similarities and difference between the cities. For example, pre-pandemic SF public transport had half the daily ridership per capita that NYC had, implying workers there were much more dependent on cars. That, combined with the much lower housing density, meant that white-collar workers were much less interested in returning to the office. NYC and SF have a similar unhoused percentage, yet one seems worse. Maybe a bunch of that is due to laissez-faire policing? But it could also be due to SF’s climate that makes being out on the street year-round slightly more doable. Downtown has particularly low housing density. How much of that is due to SF government, and how much is due to big tech paying ridiculously high rents for buildings?
- coolhand2120 3y ago
  Do you have any citations to back up “SF is just as bad as X city?” I travel a lot as work out of a SF office. It really is a lot worse than say Los Angeles which is a high bar to cross. I think the biggest difference between SF and other cities is that SF supports criminals. Car break ins are not investigated. Shoplifting is legal. Drug use is effectively legal. Physical assault/robbery is effectively legal for some cohorts. Criminals come to SF for these reasons. It’s lawlessness supported by the city council. And they’re currently talking about giving every black resident $6M dollars because of the California slave trade, mind you slavery was never in CA. But this is what the city council is interested in. These people are interested in exacerbating the problem, not fixing it. I keep thinking there’s some threshold, but there isn’t, SF seems destined to become like Detroit.

pixel3234 3y ago

Town hall should house homeless in hotels as NYC and UK does. It would solve two problems and boost local economy!

mc32 3y ago
Turning upscale hotels into SROs isn’t a way to regain valuation.
- pixel3234 3y ago
  Not SROs! Hotels should be fully compensated at commercial rate! Maybe slight discount for long term stay could be negotiated. Even $500 per night would be cheaper than current policy!
  - briandear 3y ago
    You want taxpayers to pay $500 per night for homeless? I would be furious to be paying confiscatory taxes and have those taxes go to literally putting zombie drug addicts in hotels. Very unfair to those of us that work hard to pay all those taxes. Perhaps build work camps in the Mojave instead and ship them there. Start making intentional homelessness arduous and you’ll see less of it. Prosecute illegal drug dealing and usage in public. Prosecute shoplifting. San Francisco has one do the largest homeless populations in the country. It’s because of the policies. Change the policies and many homeless will leave.
    - mhuffman 3y ago
      >You want taxpayers to pay $500 per night for homeless? I would be furious to be paying confiscatory taxes and have those taxes go to literally putting zombie drug addicts in hotels. If my memory is working they are paying about $60k a year per homeless person to address it now, which is $160+ per night now. Yes $500 is high, but the $165 is closing in on a "nice" hotel room per night now.
    - deleted 3y ago
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kubb 3y ago

Is this the Bay Area population of HN expressing their frustration that there are many homeless people in SF? These posts come up from time to time. I was there some 4 years ago, and I met some homeless folks for sure, but the city was nice.

ciabattabread 3y ago
Most of this site still believes Bob Lee of Cash was killed by a homeless guy.
- mcculley 3y ago
  Did you run a poll? How did you arrive at this conclusion?
losvedir 3y ago
I can never tell if these things are SF residents expressing frustration, or people outside of SF expressing a sort of wishful spite. I sort of learned my lesson in taking these things at face value with that evolving story of the tech exec who was stabbed. That said, what did strike me as a little odd were a lot of comments on the Vision Pro threads about where if you walk around with it on outside, you'll be instantly mugged. That's just... not the case where I live in my Indiana suburb. I leave my front door unlocked, and have had no issues leaving my laptop visible on the seat of my locked car when I'm out and about. People here seem to take for granted some amount of low level violence and theft as normal, which shocks me. I don't know if comments like those come from Bay Area residents, but I sort of assumed so because I've thought that's where the user base here skews.
- rsynnott 3y ago
  > That said, what did strike me as a little odd were a lot of comments on the Vision Pro threads about where if you walk around with it on outside, you'll be instantly mugged. I mean, as someone who visits San Francisco for work from time to time... I'm fairly sure that's not actually true? It's never felt particularly unsafe; it's just a normal largish city (albeit with an awful lot of homelessness).

classified 3y ago

So, AirBnBs only?

uudecoded 3y ago

I believe that SF hotel occupancy is down, but it's not for the typical reasons that are fanned around: there are numerous South San Francisco hotels that are MUCH cheaper, 15-20 minutes away, and have free shuttles to the airport (SFO). A lot of these SSF hotels are new and close to a quite a few ex-SoMa tech companies now in Oyster Point. Apropos of nothing, on a 3 day trip, I did see a man, minding his own business walking, get "ride-by" assaulted by a mentally ill bicyclist in the marina. I think this fits with what I'm hearing about not prosecuting that type of thing there. Other than that event, the areas in SF I saw seemed cleaner/safer than it was pre-covid.