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Hotel Owners Start to Write Off San Francisco as Business Nosedives

wsj.com

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

#31

Post by nroets »

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…

So Park Hotels bought a call option on SF real estate.

Surely they and their counter parties did some modeling and stress tests.

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

#32

Post by ufo »

hef19898 wrote: post #24
fallingknife wrote: post #21

Earlier quoted context omitted.

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.

FWIW, SVB didn't go broke because of subprime loans. They had a bank run.

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

#33

Post by [deleted] »

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.

[deleted]

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

#34

Post by dougmwne »

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.

What does “that bad” even mean? Like in some kind of relative sense, people still live there and go about their lives. Some of the things that made it a popular and pleasant city are intact. In an absolute sense, if you were to compare SF with Zurich, you would conclude that it’s a lawless mad max anarchy.

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

#36

Post by paulcole »

zoky wrote: post #22
prepend wrote: post #8

Earlier quoted context omitted.

> 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 undergr…

It likely felt safer than walking but there is a 0% chance that a 1.5 block walk through San Francisco was truly more dangerous than a 1.5 block car ride. It’s much more likely that neither was dangerous at all.

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

#38

Post by bombcar »

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…

A non-recourse loan means the lender is also “invested” in the property somewhat. That can be a good thing.

A non-recourse interest only loan is a bit batshit however.

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

#39

Post by blululu »

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.

No. It got bleak during the pandemic, but it has bounced back nicely. The real estate and hospitality sectors took major haircuts after a long run of unbounded exuberance and they want everyone to know that it is somebody’s fault. The city has problems but the only one that has really gotten worse in the past 2 years is the real estate prices going down.

*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.

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

#40

Post by agd »

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.

Compared to basically any modern city in Europe or Asia, yes. Downtown SF feels completely different - dirty, much less safe, homeless people and drugs everywhere.

It's not even close.

Note, I'm only talking about downtown SF, not the wider Bay Area.

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