Dodging Distress in SF: Hilton FiDi Lands Refi

Portsmouth Square has won a moolah mulligan after defaulting twice on $117 million in loans backed by the Hilton San Francisco Financial District hotel.

The Los Angeles-based unit of The InterGroup landed a two-year refinancing deal to hang on to the 544-room, 27-story hotel at 750 Kearny Street, straddling Chinatown and the Financial District, the San Francisco Business Times reported.

Despite months of nailbiting, the landlord wasn’t ready to walk away.

“Securing these agreements demonstrates our dedication to prudent financial stewardship and positions us favorably for continued growth and long-term value creation,” David Gonzalez, InterGroup’s COO, said in a statement.

The refinancing agreement includes a $67 million mortgage loan from Prime Finance and a $36.3 mezzanine loan with Cred REIT Holdco, both secured by the hotel.

The loans mature in two years and come with three successive one-year extension options, subject to loan conditions. The loan terms could extend financing to 2030.

The mortgage loan bears an interest rate equal to the 30-day secured overnight financing rate plus 4.8 percent. A Portsmouth borrowing affiliate bought an interest rate cap which limits it to 4.5 percent. The mezzanine loan carries a fixed interest rate of 7.25 percent.

The loans give Portsmouth wiggle room through a more positive investor outlook on San Francisco and a turbulent federal policy landscape, according to the Business Times.

In January, the hotel owner defaulted for the second time on $117 million in loans secured by the hotel. It owed more than $106 million on mortgage and mezzanine loans and was given an extension to Jan. 1 after its first default a year earlier. The initial mortgage loan originated from Bank of America in 2013.

Portsmouth owed $78.6 million on the mortgage loan and $27.5 million on the mezzanine loan, including principal and accrued default interest, according to a regulatory filing.

The company joins the owners of other large downtown hospitality properties that either couldn’t, or wouldn’t, pay off maturing pre-pandemic loans, including some that turned hotels over to their lenders. The San Francisco hotel market hasn’t recovered since the pandemic, with fewer corporate events held in the city.

Hilton San Francisco Union Square and Parc 55 are in receivership after their owner, Virginia-based Park Hotels and Resorts, turned its back on a $725 million loan. The value of the Hilton Union Square complex has fallen by $1 billion since 2016.

At the same time, the Hilton Financial District has retained its relative value since before the pandemic. In March last year, the hotel was assessed at $167 million, a 7 percent drop from its 2013 appraisal.

Portsmouth Square, a public company founded in 1967, is a majority-owned unit of The InterGroup, whose “principal business is conducted through [hotels].”

— Dana Bartholomew