A growing number of Bay Area hotels are experiencing financial distress as loans taken out between 2018 and 2021 come due amid high interest rates, rising costs, and lower revenues, according to an April 10 report. The region has seen a series of defaults, foreclosures, and sales in recent months as the hotel industry continues to recover from the impact of the pandemic.
The situation is significant because it reflects ongoing challenges for local economies that depend on tourism and business travel. While some indicators show improvement since the worst period of the pandemic, many hotels are still struggling to return to pre-pandemic revenue levels.
Recent developments include two Silicon Valley hotels receiving notices of default last month and another sold through a deed-in-lieu of foreclosure. In San Francisco’s Union Square, The Barnes hotel was sold after its owners defaulted on a loan. The Stanford Court Hotel is also on the market under threat of foreclosure. Additionally, two Hyatt House hotels in the East Bay were auctioned at deep discounts following foreclosure proceedings. Blackstone purchased Napa Valley’s Stanly Ranch resort out of foreclosure; however, analysts say this luxury resort does not reflect broader trends in the Bay Area market.
Alan Reay, president of Atlas Hospitality Group—a firm tracking hotel transactions—said that “the distress wave…is far from its crest” and expects more financial difficulties over the next year or two as many properties continue to operate at a deficit post-pandemic. Even with some improvement in revenue during this year’s first quarter—helped by events like the Super Bowl—hotel revenues across San Francisco and Silicon Valley remain well below their 2019 levels.
CBRE analyst Alex Lee-Bull noted that San Francisco’s revenue per available room (RevPAR) dropped by more than 64 percent during the pandemic but has since recovered somewhat without reaching previous highs. Oakland’s RevPAR fell by half before partially rebounding; Silicon Valley saw similar patterns but currently shows stronger recovery compared to other areas.
Reay said refinancing remains difficult even for stable properties: “If these loans were not coming due, we wouldn’t see the distress level that we’re seeing.” He explained that higher interest rates can reduce property values significantly when refinancing is required.
Despite ongoing challenges, there are signs that investor confidence may be returning. Henry Bose, senior vice president with CBRE’s hospitality sector, said revenues appear to have bottomed out in key markets like San Francisco and Silicon Valley. Bose pointed out recent major purchases—including Blackstone acquiring several prominent city hotels—as evidence institutional money is returning: “Lenders are being more forceful,” he said. “We’re likely to see a little bit more lender processes or lender-influenced processes.”
As lenders take a firmer stance on maturing loans and investors seek new opportunities amid shifting values, industry observers expect further changes in ownership across Bay Area hotels over coming months.
