Hilton-Branded Hotels Account for Outsized Share of Distress

Hospitality’s recovery has produced clear winners and losers. Hilton hotel owners are increasingly landing in the latter camp.

Nearly 16 percent of all CMBS debt tied to Hilton-branded hotels is delinquent, according to a KBRA analysis, reported by Bisnow. That gives the chain the highest distress rate among major hotel flags and comes in at more than double the overall market average.

The findings underscore how a handful of troubled big-city assets continue to weigh on lenders, bondholders and hotel owners years after the pandemic upended travel patterns.

Hilton properties account for roughly $15.9 billion in securitized hotel debt; about $2.5 billion of that is delinquent. Marriott hotels carry $23.2 billion in CMBS debt, but only about $1.6 billion is delinquent, a rate of 7 percent. Hyatt posted an even lower delinquency rate of just 2.8 percent.

Much of Hilton’s distress is concentrated in a few high-profile properties in challenging downtown markets. Two San Francisco hotels alone account for roughly $725 million of delinquent debt.

Among the most prominent examples are the Hilton Union Square and Parc 55 in San Francisco. Former owner Park Hotels & Resorts walked away from the nearly 3,000-room portfolio in 2023, surrendering the keys to lenders after the assets failed to recover from pandemic-era disruptions. The properties later sold for $408 million, a steep discount from the debt burden attached to them. The loan remains in special servicing.

Chicago’s Palmer House Hilton has become another symbol of the sector’s lingering pain. The 1,641-room landmark has been tied up in foreclosure proceedings and litigation for years as bondholders sought control of the property from owner Thor Equities. The loan was declared “unrecoverable” last year, according to servicing commentary, and interest advances have since stopped.

The troubles mirror broader operating challenges facing Hilton-branded assets. Hilton’s revenue per available room increased just 0.4 percent last year, trailing Marriott, Hyatt and IHG. While Hilton itself remains profitable thanks to its asset-light franchise model, many property owners are still grappling with rising costs, elevated debt loads and uneven demand.

— Holden Walter-Warner