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San Francisco's Hotel Market is Drowning in Debt
San Francisco's hospitality industry is grappling with a severe debt crisis, as tourism continues to fall short of pre-pandemic levels.
Jordan B. & Han-Gwon Lung
August 13, 2024
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Good morning. San Francisco's hospitality industry is grappling with a severe debt crisis as tourism continues to fall short of pre-pandemic levels.
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Market Snapshot
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hospitality h*ll
San Francisco's Hotel Industry Hit by Severe Debt Crisis
San Francisco's hotel market is struggling under the weight of bad debt as tourism fails to recover from pandemic lows.
By the numbers: According to CoStar data, the city's delinquency rate for CMBS loans in the lodging sector soared to 41.6% in June 2024, up from just 5.7% a year earlier—a staggering 630% increase. This marks the sharpest rise among the 25 largest metro areas in the U.S.
Plummeting: Adding to the financial strain, San Francisco's two largest hotels, Hilton Parc 55 and Hilton San Francisco Union Square, have collectively lost $1 billion in value and are now worth only $553.8 million. Weekend hotel occupancy in the San Francisco-San Mateo area has also taken a major hit, down 22% since 2019, compared to just a 4% decline nationwide.
Less foot traffic: This decline in occupancy is mirrored by a downturn in both leisure travel and conference attendance. The city is experiencing 26% fewer events and 31% fewer room-nights at the Moscone Center this year. With major conferences moving to other cities, hotels are losing critical "compression" nights that boost revenue during peak demand periods.
➥ THE TAKEAWAY
Zoom out: The fallout has been hard on hotel workers, many of whom are seeing their hours slashed, forcing them to take on second jobs. Adding to the tension, 3,000 workers have authorized a potential strike as they face dwindling work opportunities. Looking ahead, the tourism and conference business may not fully recover until 2028 or 2029, leaving the market in a prolonged slump.
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✍️ Editor’s Picks
Major milestone: The total US housing market will eclipse $50T in value by 2025, with a $3.1T gain in the past year alone—and New Jersey led the way.
Easing pressures: US inflation is expected to rise modestly in July but likely won't prevent the Fed from cutting interest rates in September.
Debt dominates: Real estate debt investing is all the rage with private equity, with $9.1B raised in 2Q24, driven by major PE firms pivoting away from direct property acquisitions.
Foreclosure frenzy: Blackstone (BX) and Rialto's joint venture just acquired a $17B portfolio from Signature Bank, intensifying financial pressures on NYC property owners.
🏘️ MULTIFAMILY
Market mood sours: According to an NAHB report, homebuilder optimism dwindled in Q2, with the Multifamily Production Index (MPI) dropping to 44 and the Multifamily Occupancy Index (MOI) falling to 81.
Moving momentum: A new survey of 30K US renters from Apartments.com revealed that 48% are planning to move within the next six months, signaling a rental market shift.
Third time's no charm: Watermark Capital Group faces a $45.3M loan default at Brooklyn's former railyard, halting plans for their 28-story, 497-unit project.
Power move: A Houston apartment complex owner in the middle of a $95M sale deal halts a Fannie Mae (FNMA) foreclosure, alleging technical defaults.
🏭 Industrial
Downtown data boom: AiNET plans to expand its downtown Baltimore data center to 280 MW capacity, adding 300 jobs to the local area.
Revving Up in Mesa: Magna Steyr (MGA), a major automotive supplier, expands into Mesa, AZ, with a 230 KSF facility in Power Industrial Park, creating hundreds of jobs.
Chilling developments: RealtyLink LLC and BentallGreenOak just broke ground on a nearly 215.8 KSF cold storage warehouse in Mount Laurel, NJ, aiming for LEED certification.
🏬 RETAIL
From crunches to collapse: Well-known fitness chain Blink Fitness, owned by Equinox, filed for Chapter 11 bankruptcy with assets and liabilities between $100M–$500M.
Free rent: A heavily pandemic-hit city is offering free rent to attract businesses back.
🏢 OFFICE
Loan letdowns: $18.6B in CMBS office loans have near-term maturity dates, while 40% securitized in SASB deals are facing delinquencies.
Tower triumph: Citigroup Center, near Miami, signed 46 KSF in lease agreements with seven firms, including a large law firm anchoring 18.8 KSF.
Condo craze: The Elad Group just paid $72M for 419 Park Ave South in NYC and is planning an office-to-condo conversion in Midtown South.
Magnificent Mile revival: North American Real Estate bought a historic 68 KSF Michigan Ave building on Chicago’s Mag Mile for $47M, 66% less than the last sale price in 2016.
🏨 HOSPITALITY
Clock’s ticking: Cain International and OKO Group are seeking $5.25B to finish the One Beverly Hills luxury resort in time for the 2028 Olympics.
Leisure lull: American leisure travel sees weakening demand in a sagging economy, with hotel chains lowering growth expectations and revenue outlook.
📈 CHART OF THE DAY
SmartAsset just released their 2024 report of high-income movers, and you guessed it, they're moving South!
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