To Save Downtowns, Destroy Them

[twinpeaks]

This is a stupid tile and inaccurate. It's a click bait and I fell for it.

[iheartthed]

Speaking of destroying San Francisco, here comes the wrecking ball:

Owner of SF's Largest Hotel, the Hilton Union Square, Is Walking Away, Surrendering It to Lender

Another bit of bad news for downtown San Francisco arrived Monday morning with the revelation that the investment firm that owns the Hilton San Francisco Union Square and Parc 55 hotels is walking away from its debts and giving up hope on a return of SF's convention market.

Virginia-based REIT Park Hotels & Resorts has opted to cease payments on a $725 million loan, as the SF Business Times reports today, essentially surrendering over 2,900 hotel rooms and hospitality facilities to its lender. This includes the 1,921-room Hilton San Francisco Union Square, which is San Francisco's largest hotel, occupying an entire city block, and one of the country's largest hotels outside of Las Vegas.

Park Hotels & Resorts is also giving up on the 1,024-room Parc 55, citing the continued debt burden of the two hotels on its portfolio, and multiple factors that have made the SF market less desirable for their business.

"After much thought and consideration, we believe it is in the best interest for Park’s stockholders to materially reduce our current exposure to the San Francisco market," said Park Hotels CEO Thomas J. Baltimore in a statement. "Now more than ever, we believe San Francisco’s path to recovery remains clouded and elongated by major challenges, both old and new: record high office vacancy; concerns over street conditions; lower return to office than peer cities; and a weaker than expected citywide convention calendar through 2027 that will negatively impact business and leisure demand."

...

Hotels across the city have been changing hands with some frequency in the last decade, and the latest news does not mean that the Hilton or the Parc 55 will necessarily close.

JPMorgan Chase, which recently took over SF-based First Republic Bank, will become the new owner of the hotels and may now seek out a buyer at a fire-sale price.

...

Less than a decade ago, San Francisco enjoyed one of the highest hotel occupancy rates in the country, hovering around 84% in 2015. That slid in the next few years and tanked in the pandemic, but SF Travel said occupancy was back up to 62% in 2022 — which is similar to what it was around the dot-com bust two decades ago.

https://sfist.com/2023/06/05/owner-o...-it-to-lender/

[Crawford]

I cannot imagine that hotel will face the wrecking ball. In SF? Third-rate hotels in Fort Wayne and Bakersfield soldier on.

It'll be rebranded and will continue as a hotel, or possibly converted to apartments. Maybe not as lucrative as pre-pandemic but I'm sure it's still a very valuable asset.

[JManc]

I think the hotels are staying open; I'm assuming lien holder is the landlord now. They will then dump them at some point at a huge discount.

[craigs]

Originally Posted by JManc

I think the hotels are staying open; I'm assuming lien holder is the landlord now. They will then dump them at some point at a huge discount.

Correct, and Hilton is still managing both properties and stated already that they will both remain open for business. Guests won't likely notice any change.

[TWAK]

So, what's the big hurdle with converting office space to condos or apartments? I get they would have to add walls and plumbing, but there would be money to be made by developers or whatever if they did.
I'd personally like to have a condo in a former office tower!

[LosAngelesSportsFan]

Originally Posted by TWAK

So, what's the big hurdle with converting office space to condos or apartments? I get they would have to add walls and plumbing, but there would be money to be made by developers or whatever if they did.
I'd personally like to have a condo in a former office tower!

Often times in modern towers, the cores are in the center of the building so floorplates are hard to convert to residential when all the systems of the building are in the middle (Based on what ive been told a couple times)

[Steely Dan]

Office floor-plates, particularly for post-war office towers, tend to be really beefy and deep, and can be hard to configure for residential, which have much more stringent light/vent requirements, without wasting large chunks of interior space.

It can be, and has been, done. There are many successful examples of Chicago office to residential conversions, but most of them have been from skinnier floor-plate pre-war towers.

The big thick mid century monsters are a bit tougher to solve.

[edale]

Originally Posted by BigDipper 80

I'm well aware that post-1970s skyscrapers are harder to convert than older, slender skyscrapers of eras past, but it's really annoying to me that neither the national media nor the more coastal-oriented urban planning orgs/blogs seem interested in diving deep into the lessons of the rust belt. Obviously you can't directly import Detroit's solutions over to SF, but there is literally decades worth of knowledge just sitting out there in the industrial midwest that people can and should be tapping into for ideas on how to transform a dying downtown.

I kind of understand what you're getting at, but I don't really understand what lessons the industrial Midwest has to offer. What have Detroit or Cleveland done that is so novel? They have been aggressive with office to residential or hotel conversion, but that's certainly not something unique to the Rust Belt. Downtown Los Angeles' Historic Core, to use one coastal city as an example, could provide a similar lesson, I'd think.

Maybe you could expand on what you're getting at here. I do think the Rust Belt has many lessons to teach the rest of the country, especially about how to handle regional stagnation. That is something that most of the country will be facing in coming years due to the demographic cliff we're heading toward. I think they're mostly lessons in resilience more than any real unique policy approaches, though. I mean, it's not like the Rust Belt necessarily figured it all out and is now thriving.

[mhays]

Originally Posted by TWAK

So, what's the big hurdle with converting office space to condos or apartments? I get they would have to add walls and plumbing, but there would be money to be made by developers or whatever if they did.
I'd personally like to have a condo in a former office tower!

In my region, conversions are said to cost double new construction.

There are many reasons. One is that on a renovation, a large percentage of what you install tends to be bespoke to make it fit uneven floors. Further, every aspect of every trade has to thread a needle to get installed. There are no efficiencies.

Cheaper cities also have the benefit of hopeless office markets and therefore buildings that are cheap to buy. Expensive cities tend to have optimistic owners who would rather hold out for a recovering office market.

As for "here comes the wrecking ball," what an odd idea in the "not a chance in hell" category.

[iheartthed]

Originally Posted by JManc

I think the hotels are staying open; I'm assuming lien holder is the landlord now. They will then dump them at some point at a huge discount.

Yes, of course. But you just don't walk away from the two most prominent hotels in a market like San Francisco unless there are some serious confidence issues in the market.

[edale]

Ohio has a pretty robust program of tax credits for the renovation of historic buildings. It's been said that those credits are integral pieces of the financing that makes expensive historic renovation projects pencil out. Over the Rhine would not have seen such massive reinvestment and renovation of its historic building stock without those credits. Perhaps states, or even the feds, could launch such a program for office conversions.

I do think what we saw in markets like San Francisco leading up to the pandemic was obviously unsustainable. Property valuations were obviously incredibly inflated. Some of what's going on now, or what's forecasted for coming years, can be seen as a much needed correction in these ultra high priced markets, I think. It's pretty astounding to see just how quickly fate can change. The Bay Area has gone from the poster child of American wealth and prosperity to a region that's hemorrhaging people and a central city that is seriously struggling with the basics.

[mhays]

Originally Posted by iheartthed

Yes, of course. But you just don't walk away from the two most prominent hotels in a market like San Francisco unless there are some serious confidence issues in the market.

Sure you do. Even long-term optimists sell, or surrender to lenders. This was probably about cash flow and inability to do enough about it. And lenders that would rather take the properties than make viable deals so solve the short-term issues.

That said, the convention market might be a problem.

[craigs]

Also, who says that the Parc 55 and Hilton are "the two most prominent hotels" in San Francisco? They're big, but they aren't iconic like the Fairmont, the St. Francis, the Marriott Marquis ("Jukebox"), or the Mark Hopkins hotels are.

[iheartthed]

Originally Posted by mhays

Sure you do. Even long-term optimists sell, or surrender to lenders. This was probably about cash flow and inability to do enough about it. And lenders that would rather take the properties than make viable deals so solve the short-term issues.

That said, the convention market might be a problem.

Sorry, nobody just walks away from lucrative properties unless there are some serious macro issues happening. They apparently didn't even try to sell them. Which also raises the question of why couldn't they just sell them?

[mhays]

Wrong.

The potential sale price wouldn't have covered their obligation, leaving them with a big debt. Giving up the property avoided this.

This sort of thing can happen regardless of long-term optimism.

[iheartthed]

Originally Posted by mhays

Wrong.

The potential sale price wouldn't have covered their obligation, leaving them with a big debt. Giving up the property avoided this.

This sort of thing can happen regardless of long-term optimism.

Well, yes. The property isn't worth what it was when they purchased it, and the revenue of the property doesn't cover cost of operations and debt service. Those are market issues, not some liquidity issue with the company.

[jmecklenborg]

Originally Posted by edale

Ohio has a pretty robust program of tax credits for the renovation of historic buildings. It's been said that those credits are integral pieces of the financing that makes expensive historic renovation projects pencil out. Over the Rhine would not have seen such massive reinvestment and renovation of its historic building stock without those credits. Perhaps states, or even the feds, could launch such a program for office conversions.

Almost all of the large prewar office buildings in Cincinnati have been renovated into apartments or hotels in the last 10 years.

A large postwar building was converted into apartments about five years ago. This building has 14 floors and underground parking. The prominent shape you see at the corner was a former multi-story bank branch. I remember it well from when I was a kid - multiple floors of open office desks overlooked a central atrium, and there weren't any windows. It was typical of the sort of aggressive design that was common in the 70s but lacking these days since developers seem to shy away from creating unusual spaces.


The former bank atrium space is now apartments with inset balconies:

[jmecklenborg]

Here's a current postwar apartment conversion in DT Cincinnati. This is the former HQ of Federated Department Stores, which owned Macy's. At some point they rebranded Federated as Macy's. Around 2018 Macy's (the former Federated) decamped and moved to NYC, leaving this oddly-shaped office building from around 1980.

No telling how they're going to carve the trapezoid up into apartment units:


The odd trapezoid shape, from outer space:


The lower "floors" appear to be office but they are actually parking. NYC is unique in having very little parking in postwar office buildings, whereas it's standard issue in the Midwest, and so a big selling point for apartment conversions.

[edale]

Originally Posted by jmecklenborg

The lower "floors" appear to be office but they are actually parking. NYC is unique in having very little parking in postwar office buildings, whereas it's standard issue in the Midwest, and so a big selling point for apartment conversions.

Yes, but parking wouldn't be a huge consideration for most Manhattan apartment buildings, since few Manhattanites drive or own cars. I agree having an integrated garage is a big selling point for office conversions in more car-dominated cities.

What are the chances the Macy's building actually gets converted, btw? I had heard of the plans, but I'm skeptical it will actually happen given the challenges you pointed out. Also, seems like Cincinnati has almost no development occurring these days, at least downtown. Kind of sad to see, as the city had been in a bit of a boom. I hope things pick up soon, or it could be looking at a return to population decline after finally turning the corner and growing again.