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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-st

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.
    - verelo 3y ago
      I remember spending entire days walking the city. I walked from a VC meeting to a lunch with a friend, it took over an hour. Having said that, a lot has changed since 2009
- fmajid 3y ago
  Not just hotels. Westfield just chose to default on its downtown shopping mall as well (the one that just lost its Nordstrom). San Francisco progressives got their wish: those evil gentrifying techies are leaving in droves. Unfortunately for the progressives, that also means they are taking their money with them, that was being spent by SF like drunken sailors.
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
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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
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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...

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.
  - verelo 3y ago
    I remember spending entire days walking the city. I walked from a VC meeting to a lunch with a friend, it took over an hour. Having said that, a lot has changed since 2009
fmajid 3y ago
Not just hotels. Westfield just chose to default on its downtown shopping mall as well (the one that just lost its Nordstrom). San Francisco progressives got their wish: those evil gentrifying techies are leaving in droves. Unfortunately for the progressives, that also means they are taking their money with them, that was being spent by SF like drunken sailors.

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...