Highgate Returns Keys to Hyatt Regency in San Francisco

Highgate has walked away from a 686-room Hyatt Regency hotel in San Francisco after failing to pay off a $250 million loan.

The New York-based hospitality firm returned the keys to its lender for the Hyatt Regency San Francisco Downtown SoMa at 50 Third Street, the San Francisco Business Times reported.

Highgate handed a deed-in-lieu of foreclosure to an affiliate of Blackstone Mortgage Trust for forgiveness of $290 million in unpaid debt and associated costs. Earlier this year, the firm missed a balloon payment on the $250 million loan.

The original interest-only loan from Blackstone Group’s mortgage arm was due to mature in December 2021 but was extended into last year, The Real Deal reported.

Highgate bought what was then known as the Park Central Hotel in 2018 for $315 million, or $459,184 per room. The 34-story hotel, built in 1984, was once a Westin and an ANA hotel

The hospitality firm then poured $70 million into renovations of the hotel near Moscone Center. The makeover included a redesign of guest rooms and event halls, plus a new fitness center, restaurant, private club and coffee bar.

The hotel was rebranded as the city’s second Hyatt Regency before it reopened in fall 2022.

Highgate’s exit from the city’s sixth largest hotel, with its nearly $400 million investment, comes after higher interest rates and fewer hotel bookings since the pandemic roiled the hospitality market.

In June last year, Park Hotels & Resorts walked away from the 3,000-room Hilton Union Square and Parc 55 hotel complex, after ceasing payments on a $725 million loan.

The Virginia-based lodging real estate investment trust cited a bearish convention outlook, slow business travel and tourism from East Asia, as well as a Downtown hollowed out by office vacancies and remote work, according to the Business Times.

Florida-based Westbrook Partners has also walked away from a Four Seasons hotel in the Embarcadero and is trying to sell another in South of Market.

This year, overall occupancy of hotels in San Francisco has fallen, with declines in their average daily rate and revenue per available room, according to the Business Times. Last month, hotels had a 20 percent year-over-year decline in revenue per room.

Some analysts think next year will be better overall for hotels, based on a stronger convention calendar, but that short-term profitability gains will be undermined by higher operational costs from the next collective bargaining agreement with a local hotel labor union.

Highgate, founded in 1988 by brothers Mahmood and Mehdi Khimji, owns more than 500 hotels with 84,000 rooms, valued at $15 billion, according to its website.

— Dana Bartholomew