UNITE HERE Advisory: Assets behind Hilton USA Trust 2016-SFP struggle during receivership, strike

CMBS prices drop, and hotels’ performance declines compared to competitive set

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.

Prices drop

Workers at the Hilton San Francisco Union Square struck for three days during Labor Day weekend and began an indefinite strike on September 22^nd, which is still ongoing. Since the strikes began, Classes B through F of Hilton USA Trust 2016-SFP have seen steep price drops according to Bloomberg’s valuation of the securities. Most recently, Class B dropped in mid-November from just under 65% of par to approximately 50%. As of November 29^th, its price as estimated by Bloomberg was 50.747% of par.

If the receiver and special servicer are hoping that management’s hard line in contract negotiations will result in lower labor costs, leading to a higher price for the collateral and the recovery of more of the certificateholders’ capital, the market does not seem to believe that approach is working.

Performance declines compared to competitive set

Even before the strike, the properties’ performance during the receivership has not been encouraging. The receiver was appointed on 10/26/2023. According to servicer reports, the RevPAR for the 12 months ending 9/30/2024 was $111.27, trailing the competitive set by $66.91, for a penetration rate of just 62%. The receiver was in possession of the properties for approximately ten of these twelve months. By contrast, the RevPAR for the 12 months ending 3/31/2024 was $131.00, trailing the comp set by $54.01, for a penetration rate of 71%. The receiver was in possession of the properties for approximately four of these twelve months. (Earlier servicer reports do not compare the properties’ RevPAR to the competitive set.)

For more information, visit San Francisco Hilton Strike Watch.

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