Last month, Thomas Baltimore seemed to have faith in San Francisco's recovery.
Speaking to analysts during a first-quarter earnings call, the chairman and CEO of Park Hotels & Resorts (PK) said he believed the City by the Bay would see better days.
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"When you think about San Francisco, we have no doubt in our view that certainly San Francisco comes back," Baltimore said, according to a transcript of the May 1 call. "It's not a matter of if, but when. I would say, given some of the recent reports that probably is being extended a little and perhaps elongated a little."
Baltimore said that the lodging REIT was "particularly encouraged by better than expected group performance in San Francisco with Q1 convention room nights up over 200% to over 140,000 room nights versus the same period last year."
"So the fundamental benefits, I think, of San Francisco are certainly sound," he said. "You have obviously rising office vacancy rates, which are certainly alarming and certainly something that we're watching carefully."
There is no doubt that the city is going through some tough times.
Decline in Retail Foot Traffic
San Francisco has been suffering from a steep decline in retail foot traffic around the city's Union Square shopping district ever since the covid pandemic.
Many office buildings are still largely empty as thousands of high-tech workers continue to work from home.
The market commentator site The Kobeissi Letter posted statistics showing that 17% of all office space in the U.S. is currently sitting vacant with San Francisco in top spot at 31%.
And a rash of thefts and rising homelessness have been blamed as some retailers pull out of the city.
Nordstrom (JWN) said last month that it would leave the area this summer when its current leases expire.
"Downtown SF looks like a zombie apocalypse. People who’ve not been there have no idea," Tesla (TSLA) CEO Elon Musk tweeted on April 10. The headquarters of Twitter, which Musk bought last year for $44 billion, is located on Market Street a few blocks from the city's notorious Tenderloin district.
Still, Baltimore said during the earnings call that he believed things would turn around for the city.
"San Francisco historically is a high beta market, so it goes through these periods of sort of boom and bust," he said. "Clearly a tougher period now, but we are seeing it certainly beginning to recover."
Nevertheless, Park Hotels & Resorts announced on June 5 that it was pulling out of two hotels in downtown San Francisco.
Path to Recovery 'Remains Clouded'
The company said it had stopped making payments toward a $725 million loan backed by two of its properties in the city: the 1,921-room Hilton San Francisco and the 1,024-room Parc 55 San Francisco.
Baltimore said the company made “the very difficult, but necessary decision to stop debt service payments” last week.
"Now more than ever, we believe San Francisco’s path to recovery remains clouded and elongated by major challenges--both old and new," he said in a statement.
Among other things, Baltimore cited 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.
"Unfortunately, the continued burden on our operating results and balance sheet is too significant to warrant continuing to subsidize and own these assets," he said.
Both properties are expected to be removed from Park Hotels' portfolio, which includes 46 hotels and resorts with more than 29,000 rooms
San Francisco Mayor London Breed said in a statement that no jobs will be lost at this time.
"These kinds of ownerships changes do happen, but these hotels will remain open and operating and the workers will continue to be employed," he said. "Still, we know there is a lot of work ahead of us and we will continue to focus on our economic recovery."
