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Hotel Owners Start to Write Off San Francisco as Business Nosedives

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Re: Hotel Owners Start to Write Off San Francisco as Business Nosedives

#21

Post by fallingknife »

evgen wrote: post #19
fallingknife wrote: post #14

Earlier quoted context omitted.

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.

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...

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.

Re: Hotel Owners Start to Write Off San Francisco as Business Nosedives

#22

Post by zoky »

prepend wrote: post #8
ghastmaster wrote: post #4

Wolf Richter rips on this article pretty hard: 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 properti…

> 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’…

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.

Re: Hotel Owners Start to Write Off San Francisco as Business Nosedives

#23

Post by courseofaction »

xrd wrote: post #10
gigatexal wrote: post #5

Me thinks similar things are going to happen (if they're not already) to Portland. I grew up there and then worked on SW 5th Ave from 2013 to 2018 and loved it. Since then I've been in Germany working. I went back last year to see family and my old "stomping grounds" near my old office and other places that I'd love to go eat at and such were overrun with folks with substance abuse issues, homelessness, etc., and man…

It's going to be interesting with the new ordinance to outlaw camping from dawn to sundown. If you camp during those hours, you face jail time. The theory is probably that this will separate hard core drug users from homeless people who aren't willing to go into a shelter. That'll be an interesting experiment.

A cruel experiment that will neither relieve suffering nor address its cause. America is insane.

Re: Hotel Owners Start to Write Off San Francisco as Business Nosedives

#24

Post by hef19898 »

fallingknife wrote: post #21
evgen wrote: post #19

Earlier quoted context omitted.

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...

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.

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.

Re: Hotel Owners Start to Write Off San Francisco as Business Nosedives

#25

Post by dmix »

randunel wrote: post #20

Has San Francisco become that bad? My father lives in the city, but I've never heard him complain about the state of things.

IDK about living there, it's been ~6-7yrs since I last did, but San Francisco can be quite shocking to tourists/new arrivals (this article is about hotel stays which is a combo of tourists and business travelers). I remember feeling that when I first visited and the first thing I saw coming out of BART from the Airport was someone openly pissing next to the subway entrance, which contrasted weirdly with the beautiful views. I wrote it off at first until I saw it happen multiple times that week, then later just some guy sitting next to hit wall with his dick out. Later that same visit the girl I was with was robbed and the police never showed up after 3hrs waiting (apparently not a high priority).

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.

Re: Hotel Owners Start to Write Off San Francisco as Business Nosedives

#27

Post by the_mitsuhiko »

ghastmaster wrote: post #4

Wolf Richter rips on this article pretty hard: 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 properti…

> 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?

Re: Hotel Owners Start to Write Off San Francisco as Business Nosedives

#28

Post by jgalt212 »

fallingknife wrote: post #14
ghastmaster wrote: post #4

Wolf Richter rips on this article pretty hard: 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 properti…

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.

> They didn't "fail to repay." Nobody ever repays this type of loan.

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.

Re: Hotel Owners Start to Write Off San Francisco as Business Nosedives

#29

Post by fallingknife »

jgalt212 wrote: post #28
fallingknife wrote: post #14

Earlier quoted context omitted.

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.

> They didn't "fail to repay." Nobody ever repays this type of loan. 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.

And when you pay off a loan with borrowed money the word for that is "refinance"

Re: Hotel Owners Start to Write Off San Francisco as Business Nosedives

#30

Post by jgalt212 »

HWR_14 wrote: post #11

Forgive my redundant point being repeated from a few days ago: 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 ot…

> They haven't been building equity.

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).

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