Hotel Owners Start to Write Off San Francisco as Business Nosedives
wsj.com
wsj.com
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.
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
[1] Parc 55 San Francisco - a Hilton Hotel (415) 392-8000 https://maps.app.goo.gl/p9SprpPdGZxzbejf8?g_st=ic
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.
Having said that, a lot has changed since 2009
I stayed in SF for a few nights, it was pretty shocking to me the amount of homeless people (euphemism creep: temporarily unhoused) and the various tactics they employed to try and get money. One lady was just screaming at people in a fast food restaurant, I guess she was hoping to get paid in order to go away. This was 20 years ago and I hear the situation has only gotten worse since.
California treating homeless people like sacred cows is eventually going to wreck their inner cities for everyone.
https://en.wikipedia.org/wiki/Homelessness_in_Russia
SF attracts homeless from all over the US, given its mild weather (great for living outside) and generous social services. It has been like that forever also, you can watch old movies from the 1920s about hobos jumping trains to get to SF (or LA, or Seattle, or Portland, or even Vancouver BC, choose any of the west coast cities, all for similar reasons).
People have freedom of movement in the USA, and they mostly take advantage of it.
> Maybe it’s not capitalism at fault here but a government that is unwilling or unable to supply standard social safety nets like homeless shelters and addiction therapy.
The issue is then how do you prevent one locality from having their resources swamped fixing what is really a national problem. SF can't fix the nations problems, so its voters/tax payers get jaded really quickly.
Mentally ill people are a massive part of the homeless population and we basically just yeet them out on to the street.
I stayed in the hilton union square in Feb and yes there are a lot of homeless people and addicts around but none of them even looked at me crossways
I also know that he had a permit to carry a gun, which (at the time) was near impossible to get in California, and that he in fact did so. Nevertheless, he chose to drive the block and a half rather than walk, because the last thing he ever wanted to do was be forced to use his gun.
I personally don't consider that to be an “obvious display of wealth”, but take it for what you will.
This person sounds like they have some mental issues.
And for the record, Mission has almost 4x the crime rate as California, which is already above the national average.[1] So it seems as though their “paranoia” was paying dividends.
[1] - https://www.areavibes.com/san+francisco-ca/mission/crime/
And, for the record, the source you cited shows that crimes where you would be morally or legally justified to use deadly force to defend yourself (e.g. rape, murder, assault), are less frequent in California than the national average and less frequent in San Fransisco than in California's average. Absolutely, if you think using a gun is a valid response to someone breaking your car window you are absolutely not a good judge of threats. Nor are you a responsible gun owner and should be forced to surrender your gun.
That are not run down. My complaint is against writers who are inaccurate. It’s frustrating and wastes my time when writers do this poor quality work with mistakes. And it doesn’t seem like a mistake so much as a deception.
It’s not “may or may not” as these hotels are clearly not run down.
You’re right about then neighborhood, but the point that the article is trying to make is that it’s the hotels that suck, not the neighborhood. But that’s not true
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.
Largely, but not strictly true. When the property changes hands, the old loan is paid down by the original owner / creditor and a new loan is taken out by the new owner / creditor.
Not really.
If I buy a house with a mortgage, I wouldn't say I refinanced the house just because the previous owners also had a mortgage. Refinance is only used when the owner is the same across loans.
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.
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?
But not my industry, just seems like it would be reckless from the outside.
Surely they and their counter parties did some modeling and stress tests.
[1] https://www.otainsight.com/resources/blog/us-hotel-pricing-t...
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...
> 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-...
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…
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.
People need support. This support requires funding. This funding comes from taxes, which requires business operations and such. Business operations are impacted by perceptions of safety and cleanliness, which also requires funding and scales with the number of people who need support.
And people on HN make it sound like the Bay Area is full of workers making several hundred of thousand of dollars a year, buying houses worth several million dollars, so income tax and property tax revenue should be off the charts too.
Isn't the bay area be absolutely swimming in tax revenue already?
If SF raises additional taxes, the few companies left will simply decamp to other places in the Bay Area like San Jose. The crime and quality of life issues are already pushing them to do so. They only set up shop in SF after 2000 because that was the only way to attract talent from Berkeley or SF who were not willing to commute to the South Bay, but in the new job market environment that is no longer an issue.
https://www.slowboring.com/p/they-have-homelessness-in-europ...
So you mean, they should be allowed to keep their stuff (e.g. lots of stolen bikes) strung out in the middle of a park during a day, and they shouldn't have to move into shelters because they can't deal with their drug habits?
If this were Switzerland (or specifically, Lausanne where I used to live), the Swiss police would really not take any of that crud. They would apply lots of tough love, swiss style, before it got to that point.
Portland is literally filled with bleeding heart liberals in comparison (and actually is, people are just losing patience).
https://en.wikipedia.org/wiki/Wealth_inequality_in_the_Unite...
It's this. America does not invest in its social problems.
But I literally don't care. I already have a paid off house, and I just don't need anything. My big goal in life is to have a 3 bed flat or townhouse where my kids can run out the door and ride their bikes to their friends' houses (and school, and the cinema, etc.) and I'm not worried about them. I don't want a fancy car (or any car, actually), gadgets, etc.
I kinda wanted to FIRE at one point but that was only because I hated what I was doing. Finding work from climatebase.org or similar helps a lot with that. I would LOVE to work for humankind.city, for instance.
I am trying to get folks I know to move out of the US, too!
I bring up US working holiday visa arrangements (with Ireland, Australia, New Zealand, Singapore, and South Korea), the Dutch American Friendship Treaty (surprisingly straightforward way to live in the Netherlands if you can employ yourself), recent loosening of German immigration rules, and oddball options like the French Foreign Legion or living in Svalbard far too often in casual conversation.
Anyway, I miss that greasy, bastardization of the taco...
Immigration and liberal laws unto it will save nations I think. Countries going forward will need skilled labor more than ever as birth rates fall.
Germany has been good to me, Berlin especially, but if I were to do it all over again, I'd try my hardest to get placed at a company in Amsterdam. What an amazing place that place is.
I have similar fond memories of Taco Bell. The 59, 79, 99 cent menu sustained me as a teenager.
As it turns out I am forming a BV and working on moving to Utrecht in the next few months. Ireland was good to me as well, but has not been a great place to raise kids.
/me google's "Dutch American Friendship Treaty"...
Renouncing US citizenship?
?Moving out of the US with children
Buying a home and declaring ?residency outside the US
These to me are what define leaving entirely.
Taking a gap year, for example, does not count.
SF has some of the worst hotels I've seen anywhere. So much hasn't been updated for decades and it definitely shows.
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.
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.
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).
Then refinance and-or sell.
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.
A non-recourse interest only loan is a bit batshit however.
Not as crazy as you think as that’s pretty much what the FHA does with consumer mortgages in non-recourse States. It’s not quite zero but I think it goes as low as 3.5% down.
You can almost create this position synthetically by getting a non-recourse loan for the bulk of the purchase, and an unsecured loan (at a higher rate) for what would normally be the down payment. You end up with two loans to repay, one of which is tied to the property and other purely to your good faith and credit. The latter would have a claim for non-repayment but it could be much smaller than the full property price and need not even be anything close to 20%.
And they do get a bit spicy when home values decrease.
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.
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?
SF has much more property crime than Los Angeles, but lower violent crime than Los Angeles (and most other big cities).
SF was a place to cosplay city life for people who commuted into Silicon Valley. Recently the VC network seemed to claim it but that's by definition small numbers.
I was there some 4 years ago, and I met some homeless folks for sure, but the city was nice.
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.
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).
... Is that not the attitude of the police _everywhere_, though? I've never heard of the police anywhere taking much of an interest in items stolen from cars; it's not like they really have a realistic way to pursue that even if they wanted to.
The mentality I don’t understand is the whole it’s “part and parcel” for living in a city. That it’s normal for crime to creep around, for litter and feces to be spread, and for drugged out people to be laying in the streets.
That’s not normal and it’s considered unacceptable in many places. Places for free than SF nowadays.
In my opinion it's not so much homelessness that is the issue, but rampant heavy drug use (methamphetamine and fentanyl). I think the term homeless is a misnomer. It's the debilitating drug use and the consequences of what that does to people's behavior that causes downstream issues to public safety. Working class people who are trying to do everything right (like the Walgreens worker) are the ones most impacted, and that to me is the most frustrating part.
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.
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.
> 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.
> The city’s lodging business has been squeezed by crime and other quality-of-life issues that have kept many convention bookers away.
> concerns over public safety are prompting groups and associations to shift their business to markets like Las Vegas
and the links [0], [1] in the article are even worse
> There has been an exodus of retailers and other businesses from the mid-Market Street area of downtown amid rampant public drug use and homelessness.
> “We try to call security, but they are usually busy. So we just let them do what they want.”
*edit, the Magnitude of problems is as high as ever but the derivative is not. For people who don’t live in the city there are some pretty nasty things and nasty areas, but you get used to this things are not that different from where they were 5 years ago.
It's not even close.
Note, I'm only talking about downtown SF, not the wider Bay Area.
[1]Manteca, Stockton, Modesto, Fresno, etc.
(Not that there’s any point in discussing this in the first place, since it will never actually happen.)