Two of San Francisco’s largest hotels lose $1 billion in value within eight years

The value of San Francisco’s two largest hotels has plummeted by $1 billion; the city’s hospitality industry is lagging behind the rest of the country.

The 1,024-room Parc 55 and the 1,921-room Hilton San Francisco Union Square are valued at a combined $553.8 million, down 65 percent from their 2016 appraisal of $1.56 billion, the San Francisco Business Times reported, citing a note from Trepp of the Kroll Bond Rating Agency.

Last summer, Virginia-based Park Hotels & Resorts defaulted on a $725 million loan related to its Parc 55 at 55 Cyril Magnin Street and its Hilton San Francisco Union Square at 333 O’Farrell Street.

In October, a bankruptcy trustee took control of both hotels and plans to sell them in less than a year. The bankruptcy trustee must find a buyer for both hotels by September 1st or face an out-of-court foreclosure.

Despite the estimated drop in value, the pool of potential buyers is likely to be small, according to the Business Times report.

The hotel portfolio has not generated any money since 2020, although it generated nearly $1 million in net cash flow before mortgage payments last year, according to bondholder reports.

In the 12-month period ending March, both hotels were operating at 52 percent capacity and had a cash flow deficit of $15.7 million.

Industry analysts do not expect the San Francisco hotel and restaurant market to recover before 2030. A potential buyer would therefore have to suspend profit expectations for several years and also pay for the costly modernization of thousands of rooms.

One hotel expert estimated that costs could range from $50,000 to $100,000 per room, making the total renovation in the range of $150 million to $300 million.

The Hilton Union Square is the city’s largest hotel. It closed at the beginning of the pandemic and reopened 14 months later in May 2021.

Parc 55 is the fourth largest hotel in the city. It was closed for two years and will reopen in May 2022.

Michelle Russo, CEO of Hotel Asset Value Enhancement, is serving as its court-appointed receiver.

— Dana Bartholomew

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