Bay Area Hotel Distress and California Insurance Debate

What might be a benchmark of success for California’s next insurance commissioner?

For state Sen. Ben Allen, one of eight candidates in the relatively high-profile race, it would be a return to the land of the arcane for the every-four-years statewide election to fill the post.

“It’s become so high-profile because of all the problems we have,” Allen told an audience in downtown San Francisco on Thursday, gathered for a debate among five of the candidates. ““I think everyone wants the insurance commissioner’s position to go back to just doing work as opposed to this existential crisis that we’re in right now.”

The debate, the first held in San Francisco ahead of the June primary, featured five of the candidates, including former state legislator Steve Bradford, former San Francisco supervisor Jane Kim, attorney and business executive Merritt Farren, and financial analyst Patrick Wolff. The top two candidates will face off in the November general election.

Last year’s fires in Los Angeles County put the choice for the state’s next insurance commissioner under a microscope. The commissioner primarily sets the rules for insurance companies operating in the state, and those rules often represent a tightrope between protecting consumers and making California an attractive place for insurers to operate. In recent years, wildfires, as well as other natural disasters, have sent many insurers packing, leading more homeowners to join the state’s FAIR Plan for fire insurance, an option of last resort that has for many become the only choice.

Much of the Bay Area’s population nodes exist outside of the wildland-urban interface, or WUI, the area where human infrastructure intersects with undeveloped vegetation. However, much of Marin County, the western half of the Peninsula, and the eastern portions of Alameda County sit within the WUI.

The candidates pushed for more transparency and standardization in the insurance industry.

Bradford’s metric of success would be faster rate approvals. Wolff wants to set up an annual benchmarking report to show how the state is improving the insurance landscape. Farren wants to see more insurers with new insurance products, while Allen wants to see reduced reliance on the FAIR Plan. Kim, who left the debate early, has pushed for a single-payer insurance system.

Is the Bay Area’s hotel distress a positive sign?

When the tech industry was humming in 2018 and 2019, investors bullish on the Bay Area and Silicon Valley increasingly placed bets on the region’s hotel sector.

Yet, for many, that bet crumbled, as the pandemic decimated corporate travel, the hotel lifeblood in the area. In San Francisco and Oakland, revenue per available room, the main indicator of a hotel’s economic health, dropped by more than 60 percent, and nearly 50 percent in Silicon Valley.

Despite the recent sense of healing, revenue hasn’t fully recovered, tariffs have pushed costs up, and interest rates have jumped. Now, many of the five-to-seven-year loans investors took out to purchase the hotels are coming due and lenders are increasingly taking action.

Two Silicon Valley hotels received notices of default last month and another was sold in a deed-in-lieu of foreclosure. The Barnes hotel in San Francisco’s Union Square sold after its previous owners defaulted on a loan, and the Stanford Court Hotel hit the market under a looming foreclosure. A pair of Hyatt House hotels in the East Bay sold for pennies on the dollar at a foreclosure auction. And Blackstone purchased Napa Valley’s Stanly Ranch resort out of foreclosure, though analysts have emphasized that the luxury resort market is anomalous to the trends seen in the Bay Area.

Yet, as CBRE hotel sector analyst Henry Bose told The Real Deal, the distress might be a good sign. Banks and lenders are seeing increased demand for a piece of the hotel sector, pushing property values closer to the outstanding balance on the loan they’re owed, leading lenders to take their debt back out to the market.

“Lenders are being more forceful,” Bose said. “We’re likely to see a little bit more lender processes or lender-influenced processes.”