- The delinquency rate for hotel loans in San Francisco has spiked to 41.6%, the highest among the top 25 U.S. metro areas.
- The city’s weekend hotel occupancy rate in June 2023 dropped 22% from 2019 levels, compared to a 4% decline nationwide.
- Major hotels like Hilton Parc 55 and Hilton San Francisco Union Square saw drastic losses in value, leading to owners exiting the market.
San Francisco’s hotel industry is grappling with a severe debt crisis, as reported in WSJ.
According to CoStar data, the city’s delinquency rate on CMBS loans for the lodging sector skyrocketed to 41.6% in June 2023, up from just 5.7% a year earlier.
This alarming increase, the largest among the nation’s 25 largest metro areas, highlights the significant financial strain on hotel owners in the city.
Tourism Slump Continues
The sharp drop in visitors since the pandemic is a primary factor behind the sector’s troubles. Weekend hotel occupancy, a key indicator of leisure travel, remains 22% below 2019 levels across the San Francisco-San Mateo region, far outpacing the 4% national average decline.
Despite hopes for recovery, leisure travel has yet to rebound, and the city’s conference business is projected to take until 2028 or 2029 to fully recover.
The impact of reduced tourism is evident in the drastic devaluation of major hotels. The Hilton Parc 55 and Hilton San Francisco Union Square, two of the city’s largest hotels, have collectively lost $1B in value. Park Hotels & Resorts (PK), the REIT that owned the properties, has since exited the market.
Challenges for Workers
The tourism downturn has hit hotel employees hard, with many facing reduced hours and seeking more jobs to make ends meet. Contracts for 10K hotel workers in the Bay Area are set to expire, and 3K workers have voted to authorize a potential strike, reflecting growing discontent.
Despite the challenges, there are glimmers of hope. The San Francisco Travel Association reports an increase in European visitors, particularly from the U.K., Germany, and France, and growing interest from tourists from India.
However, the city’s tourism recovery remains slow, and much depends on San Francisco’s ability to attract more conferences and improve its overall appeal to tourists.
Road to Recovery
As San Francisco’s hospitality sector navigates these unparalleled challenges, industry leaders remain cautiously optimistic.
Efforts to improve the city’s cleanliness and appeal to both tourists and businesses are ongoing, and there are signs that the situation may stabilize in the coming years.
For now, the city’s hotels continue to struggle with reduced demand and mounting financial pressures.
