UNITE HERE Advisory: Ongoing strike threatens resolution of defaulted loan behind Hilton USA Trust 2016-SFP

Hotel workers at San Francisco property securing the loan have been on strike for over six weeks. Failure to resolve the strike raises questions about recovery of certificate holders’ capital during receivership.

UNITE HERE, the union of hotel workers throughout the United States and Canada, issues the following advisory to holders of Hilton USA Trust 2016-SFP asset-backed securities:

After Park Hotels & Resorts stopped making payments on the loan backing the Hilton USA Trust 2016-SFP commercial mortgage pass-through certificates, a receiver was appointed to manage the collateral, the Hilton San Francisco Union Square and Parc55 hotels. Michelle Russo of HotelAVE is the court-appointed receiver, and Wells Fargo Bank, N.A., is the servicer and special servicer for the loan. The receiver has engaged Eastdil Secured to market the property for sale.

Meanwhile, hundreds of workers at the Hilton San Francisco Union Square, the larger of the two properties securing the loan, have been on strike since September 22nd. The strike is in its seventh week, with no end in sight, even though Hilton, the manager of both properties, has recently settled contracts with UNITE HERE members in Boston, Honolulu, San Diego, San Jose, and Baltimore, securing labor peace and predictable labor costs for the owners of other large, full-service properties. The failure to resolve the strike in San Francisco raises questions about whether recovery of the certificate holders’ capital will be maximized during the receivership.

As of August 2024, Morningstar DBRS estimated that the reduced value of the hotels “would fully erode the balances of Classes E and F and partially erode the balance of Class D. Although the scenario suggests proceeds would be sufficient to repay Classes A, B, and C in full, there remains significant uncertainty with regard to the stability of property cash flows, the investor appetite as the special servicer markets both hotels for sale, and the time to resolution given these factors.”¹

Russo was quoted in the Wall Street Journal in June 2023 stating that “hotels are not worth as much today as they were pre-Covid in San Francisco” because of slower convention travel not only today but also years into the future, given that conventions are booked years in advance.² The ongoing strike may exacerbate this situation with respect to the loan collateral, even as the broader San Francisco hospitality industry recovers. More information about these potential impacts is available at San Francisco Hilton Strike Watch.

The court order appointing the receiver gave a deadline of September 1, 2024, to complete a sale, which deadline has since been extended to March 31, 2025. The more recent order stipulates that “Plaintiff shall not petition the Court for an extension” of this deadline. If a sale is not completed by the deadline, the properties will head to non-judicial foreclosure.

¹ https://dbrs.morningstar.com/research/438408

² https://www.wsj.com/articles/hotel-owners-start-to-write-off-san-francisco-as-business-nosedives-e84c64ef

View source version on businesswire.com: https://www.businesswire.com/news/home/20241108230476/en/

The ongoing strike at the Hilton property may exacerbate this situation with respect to the loan collateral, even as the broader San Francisco hospitality industry recovers, the Union warns.