San Francisco is Collapsing: 2 largest hotels have lost STAGGERING $1+ BILLION in value since 2016. SF is a WARZONE
The Commercial Real Estate Crash is Here. San Francisco, LA, New York, Austin, Las Vegas, Houston. Coming to your City Soon
San Francisco's 2 largest hotels have lost a shocking $1+ BILLION in value since 2016
The Union Square and Parc 55 Hotels were valued at $1.56B in 2016 but their value has plunged to $554M according to Kroll Bond Rating Agency
This is absolutely troubling times for the city as values of all types of commercial real estate have fallen off a cliff.
The situation in San Francisco's hotel industry provides a clear example of how the hospitality sector can serve as an indicator of economic health. The article you've referenced highlights a significant downturn in the city's hotel market, which has far-reaching implications for the local economy.
Hotels, conventions, and restaurants are indeed crucial barometers of economic vitality for several reasons:
Employment: These industries are major employers, particularly for entry-level and service sector workers. A decline in these sectors often leads to widespread job losses.
Local spending: Visitors staying in hotels and attending conventions contribute significantly to local businesses through their spending on meals, transportation, shopping, and entertainment.
Tax revenue: Hotels generate substantial tax revenue for cities through occupancy taxes, which fund various municipal services and projects.
Economic multiplier effect: The money spent by visitors circulates through the local economy, supporting a wide range of businesses and jobs beyond just the hospitality sector.
Investment and development: A thriving hotel and convention industry often attracts further investment and development in an area.
In the case of San Francisco, the article reveals several concerning trends:
A $1 billion drop in hotel property values, indicating a severe downturn in the sector.
Occupancy rates falling to 38%, far below the break-even point for most hotels.
Major conventions being canceled or moved to other cities, resulting in lost revenue for hotels, restaurants, and other local businesses.
Job losses in the hospitality sector, with some hotels laying off up to 75% of their staff.
These factors combine to create a negative feedback loop: as hotels struggle, they cut staff and services, making the city less attractive to visitors, which in turn further reduces hotel occupancy and spending in the local economy.
The situation in San Francisco serves as a stark reminder of how interconnected various sectors of the economy are, and how a downturn in one area can have ripple effects throughout the entire economic ecosystem of a city or region. It underscores the importance of the hospitality industry not just as a standalone sector, but as a vital component of overall economic health and vitality.
Banks can be significantly impacted by commercial real estate (CRE) crashes in several ways:
Loan losses: Banks face potential losses on their CRE loans if property values decline and borrowers default. A recent study estimates that U.S. banks could face up to $160 billion in losses from CRE loan defaults.
Capital adequacy: Significant loan losses can erode banks' capital buffers, potentially threatening their solvency. The study suggests that 67 regional banks could become insolvent if half of uninsured depositors withdraw funds.
Asset quality deterioration: As CRE values decline, the quality of banks' loan portfolios deteriorates, leading to increased provisions for loan losses and reduced profitability.
Refinancing risks: With $929 billion in CRE loans maturing in 2024, banks face challenges as borrowers struggle to refinance at higher interest rates.
Exposure varies by bank size: Larger banks and nonbank lenders tend to have more exposure to office properties in central business districts, which are more vulnerable to remote work trends. Smaller banks generally have less exposure to these high-risk areas.
Stress test performance: Stress tests show that the US economy can not withstand these dominoes falling.
Regional variations: The impact on banks can vary depending on their geographic focus and the types of CRE properties they finance.
Tighter lending standards: As risks in the CRE market increase, banks may tighten their lending criteria, potentially leading to a credit crunch that affects other sectors of the economy.
Systemic risk concerns: While Treasury Secretary Janet Yellen has stated that CRE issues are unlikely to pose a systemic risk to the banking system, there are growing concerns among fund managers about the potential for a broader credit event triggered by CRE troubles.
Regulatory scrutiny: Increased risks in the CRE market may lead to greater regulatory oversight and potentially stricter capital requirements for banks with high CRE exposure.
Here's a list of companies that have recently exited or announced plans to exit San Francisco, particularly in the Union Square area:
Nordstrom (San Francisco Centre mall)
Old Navy
Banana Republic (owned by Gap Inc.)
Gap
Target
Anthropologie
CB2
Crate & Barrel
AmazonGo
Saks Off Fifth
Office Depot
Walgreens (multiple locations)
CVS
Westfield (gave up its San Francisco mall)
Cinemark
Hollister
Adidas
The Lego Store
Macy's (announced closure of its 95-year-old location)
L'Occitane
Sephora (San Francisco Centre)
The North Face (Union Square)
Starbucks (multiple locations)
First Republic Bank
AT&T
end of section
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Solution = Promise
Citations:
https://www.sfchronicle.com/sf/article/s-f-hotels-lose-1-billion-in-value-19552250.php
https://www.reuters.com/markets/us/big-us-banks-withstand-feds-commercial-real-estate-shock-scenario-2024-06-26/
https://www.jpmorgan.com/insights/real-estate/commercial-real-estate/are-banks-vulnerable-to-a-crisis-in-commercial-real-estate
https://www.bostonfed.org/news-and-events/news/2024/03/smaller-banks-hurt-less-by-commercial-real-estate-decline-christina-wang-boston-fed.aspx
https://www.businessinsider.com/commercial-real-estate-crash-bank-losses-interest-rates-2024-2023-12
https://www.foxbusiness.com/economy/commercial-real-estate-trouble-could-trigger-systemic-credit-crash-fund-managers-say