Park Hotels & Resorts Inc. Announces Cessation of Payment on $725 Million Non-Recourse CMBS Loan Secured By Two of Its San Francisco Hotels

Park Hotels and Resorts ^ | 6-5-23 | Park Hotels and Resorts

[T.B. Yoits]

Cities have been done since prior to WW2. They had a surge due to military needs during WW2 and the delay until the rest of the world recovered but they were done.

The "white flight" was inevitable; not because of the lie of racism but because companies had already left and cities were hostile to raising families.

Commuting was just a sick band-aid.

The takers in the cities, including government workers, cemented any future they had into a pile of debt that will never be paid back.

[realcleanguy]

I’ve stayed at both over 25 years ago. Too bad. Signs of the times. San Francisco is a dying city

[Noumenon]

Given the Marxist outlook of th3 city rulers, they may just seize them.

[BobL]

3000 rooms total - sounds like a GREAT PLACE for Biden’s Migrants.

[ChildOfThe60s]

Commercial real estate market in the big cities is going south fast. Add crime and crap everywhere to help SF lead the pack in devolution.

[LouAvul]

......concerns over street conditions..and a weaker than expected citywide convention calendar

Uh, those are one in the same. Conventions eschew san frasicko because of the street conditions.

Liberal politicians. The bane of civilization and capital enterprise.

[cgbg]

The lender or lenders are not named.

We will probably see future headlines of their demise, whoever they are.

Meanwhile investors in the ownership REIT are going to take it in the teeth.

[vivenne]

Or turn them into hotels for illegals. Win Win.

[Steely Tom]

Weakest euphemism I have seen.

You mean "Cessation of Payment" ?

[nwrep]

No, concerns over street conditions.

[Jane Long]

Never fear.....CCP is here, to sweep in on all of these *deals*.

Per a report I heard, earlier, today....they own the 50 story NYC hotel that is now housing all of the new illegal imports.

Why...this could be the next housing facility. Hu knows?

[tinamina]

JP Morgan Chase

[Steely Tom]

Ah yes. The famous street conditions of San Francisco.

[Svartalfiar]

There’s something seriously wrong with this story. The loans mature in 5-6 months, so why not pay it off instead of forfeiting the collateral? I would bet (even in SanFran) that the two hotels are still worth way more than the remaining loan balance!

[Romulus]

Pension funds and life insurance companies.

[Fido969]

The bonds were secured, but non-recourse. The REIT just walks away from the debt and the property. The REIT stockholders are protected in this instance.

The debt-holdets can seize the hotels and sell them, probably at a loss, but they shouldn’t lose everything.

[Fido969]

The payoff on the loans must have been more than the value of the property. It would make sense then not to pay off the loans, and let go of the property. Instead, let the bond holders deal with it. They’ll take the loss, but won’t lose everything.

[nwrep]

Sadly, that beautiful America no longer exists.

[Svartalfiar]

The payoff on the loans must have been more than the value of the property.

I don't think that's that likely.. Even in a crappy place like SanFran, three thousand rooms of hotel is quite a lot of property. If it was just about saving money from being underwater, they would have made this decision a year or two ago. At six months left, they should have about 5% of the total loan remaining. Do they really think the hotels have lost 95% of their value? (Actually more since the loan is likely somewhat less than the original value.)

[Albion Wilde]

starting in June, it ceased making payments toward the $725 million non-recourse CMBS loan which is scheduled to mature in November 2023, and is secured by two of its San Francisco hotels

Had to look it up. Wikipedia: Nonrecourse debt:

Nonrecourse debt... is a secured loan ... secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender can seize and sell the collateral, but if the collateral sells for less than the debt, the lender cannot seek that deficiency balance from the borrower—its recovery is limited only to the value of the collateral. Thus, nonrecourse debt is typically limited to 50% or 60% loan-to-value ratios, so that the property itself provides "overcollateralization" of the loan.

The incentives for the parties are at an intermediate position between those of a full recourse secured loan and a totally unsecured loan. While the borrower is in first loss position, the lender also assumes significant risk, so the lender must underwrite the loan with much more care than in a full recourse loan. This typically requires that the lender have significant domain expertise and financial modeling expertise.

A mutual gamble. Could work out "less bad" for the borrower in an inflationary environment, depending on how many other assets they can write this off against. Meantime, the bank will face escalating depreciation and taxes, and decreasing market prospects. This could possibly start another domino cascade in banking circles.

The property could take a really long time to sell in the absence of a gubmit bailout. Come to think of it, maybe both sides already received assurances from Nanzi prior to the announcement. We will know if the lender tries to sue the borrower to keep them from leaving.