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Park Hotels sues SF for allegedly improper transfer tax and penalties

REIT files lawsuit seeking refund of $8 million for 2019 acquisition

Park Hotels' Thomas Baltimore and the Hyatt Centric Fisherman’s Wharf at 555 North Point Street

Park Hotels and Resorts has filed three lawsuits against the City of San Francisco for allegedly having to pay improper taxes on a 2019 real estate acquisition, according to documents filed in San Francisco Superior Court. 

In 2019, Park Hotels acquired the Chesapeake Lodging Trust, which included the Le Méridien in the Financial District, the Hotel Adagio near Union Square and the Hyatt Centric Fisherman’s Wharf San Francisco. Le Méridien and Hotel Adagio were sold to KHP Capital Partners and to an affiliate of Magna Hospitality group, respectively, in 2021.

When the Virginia-based real estate investment trust took over the properties they valued them at $353 million and paid a transfer tax of $10.6 million for all three. The lawsuit alleges that the Office of Assessor-Recorder came back a few months later and determined that fair market value for the properties was around $532 million, which required a higher transfer tax payment. 

In February, Park Hotels filed an appeal disputing the number set by the assessor-recorder. The assessment appeals board set a new fair market value at $484.3 million, between Park and the city’s evaluation. The lawsuit alleges that the assessor-recorder incorrectly determined the higher tax charge, which included late payment fees and non-taxable assets such as personal property as part of the evaluation. 

“The 25 percent penalty and 10 percent penalty are unconscionable, excessive, illegal and unconstitutional as they are punitive in nature and bear no reasonable relationship to the offense of plaintiffs’ alleged underpayment of real property transfer tax,” the lawsuit states. 

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Park Hotels seeks a refund of roughly $8 million in transfer tax payments which it claims were incorrectly calculated, as well as interest on the refund and attorney fees. The Assessor-Recorder’s Office did not respond to requests for comment. 

While Park Hotels is working to recoup the allegedly improper tax payments, it recently decided to punt on major assets in San Francisco. It will cease making payments on a $725 million non-recourse CMBS loan on Hilton San Francisco Union Square and Parc 55. Those are the largest hotels in the city and the loan matures in November. 

Park is not the only investor to struggle to keep up with debt payments on hospitality assets in the city. According to a report by Trepp, 89 percent of lodging properties with CMBS loans are making just enough revenue to cover loan payments

“You have an interest rate environment now that is significantly higher than when these were taken out,” David Putro, head of commercial real estate analytics at Morningstar, said. “If you have a loan that originated in 2013 and matures in 2023, you’re probably looking at a couple hundred basis points difference in interest rates.”

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Park Hotels' Thomas Baltimore Jr. with 333 O'Farrell Street (left) and 55 Cyril Magnin Street (right) (Getty, Park Hotels, University of Virginia, Eric in SF, CC BY-SA 3.0 - via Wikimedia Commons, Dead.rabbit, CC BY-SA 4.0 - via Wikimedia Commons)
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Truist Securities' Gregory Miller; (right) Hotel Zeppelin, 545 Post Street; (left) Hotel Zoe Fisherman’s Wharf, 425 North Point Street, San Francisco (Getty, Linkedin, Five Star Alliance, Hotel Zoe)
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