Club Quarters San Francisco Heads Toward Foreclosure

The 346-room Club Quarters San Francisco hotel, owned by Blackstone Group, is barreling toward foreclosure.

Negotiations have stalled on a delinquent commercial mortgage-backed securities loan by CMBS valued at $274 million that includes the 10-story hotel at 424 Clay Street, in the Financial District, the San Francisco Business Times reported, citing a CMBS industry report.

CWCapital, the special servicer on the loan since 2020, is “pursuing foreclosure” for the hotel and three other CQ hotels in Chicago, Boston and Philadelphia secured by the loan.

Bank of America and Blackstone “were unable to reach a workout agreement,” according to the report. Last month, the parties were still mulling their options.

Bank of America issued the loan in 2017 to a real estate fund owned by the New York-based Blackstone. It’s been delinquent for 34 months.

Club Quarters San Francisco was part of the four-hotel package bought by the Blackstone Real Estate Partners VII fund in 2016 for $283 million.

The fund has considered walking away from the $274 million commercial mortgage-backed securities loan tied to the properties, CoStar News reported last year.

The loan was transferred to special servicer CWCapital in June 2020 after the fund skipped payments, citing pandemic-related closures.

In late January, the Business Times reported that Blackstone was considering a CQ San Francisco sale. A zoning verification letter was requested for the address — often a part of the due diligence process for prospective buyers.

A prospective buyer could wait out the foreclosure, then negotiate to buy the loan at a discount and then foreclose on the properties themselves, as was the case of the Huntington Hotel, according to the Business Times.

A reappraisal of the hotel in February 2022 found it to be in “good condition.”

Despite Downtown San Francisco’s woes, the Club Quarters is the most valuable of the four properties on the loan and the only hotel to appreciate since 2017, increasing 1.13 percent to $160.8 million in October.

Its last reported occupancy rate was 66-percent, with an average daily room charge of $178 and revenue per available room of $118.

— Dana Bartholomew