Fewest Hotel Deliveries in California Since 2014
Hotel development plunged across California in 2024, with the lowest total of new hotels and rooms delivered to the Golden State since 2014.
Only 35 new hotels were delivered in California last year, a drop of 34% from the 2023 total of 53. These openings added a paltry 3,798 hotel rooms to the lodging inventory in the state, down nearly 40% from the previous year’s total of 6,280.
The new annual survey from Atlas Hospitality Group also reported a shrinking hotel development pipeline in California, with a decline in the number of hotels under construction or being planned.
The increased cost of construction, high interest rates and lenders pulling away from new hotel construction all contributed to the decline in new hotel development. Atlas noted an increase in the number of hotel projects that have started then stopped construction and have since defaulted on their loans.
“We predict that in the near term the future for hotel construction will remain weak as investors focus on purchasing existing hotels at discounts to replacement costs,” Alan Reay, Atlas Hospitality president, said in the report.
The largest hotel that opened in California in 2024 was the 197-room Chicken Ranch Casino Resort in the Tuolumne County city of Jamestown.
The anemic hotel delivery total in California was most pronounced in the nine-county Bay Area, where only three hotels encompassing a total of 348 rooms opened in 2024, a nosedive of 75% from the 12 hotels with a total of 1,615 rooms that were delivered in 2023.
San Francisco has not seen a new hotel open for two consecutive years. As the city’s downtown struggles to mount a post-pandemic recovery, the list of large hotels being handed back to lenders keeps growing.
Earlier this month, the owner of the Hilton San Francisco Financial District was served a termination notice by its lender after failing to pay more than $117M in debt, according to an SEC filing.
Portsmouth Square, owner of the 544-room, 27-story hotel at 750 Kearny Street, initially defaulted on a mortgage loan and a mezzanine loan backed by the property in January 2024 and was given a one-year extension, only to default a second time this month, the San Francisco Business Times reported.
Portsmouth was served a termination notice on Jan. 3, two days after the expiration date of the forbearance agreement from Bank of America and other institutional lenders. In its filing, Portsmouth said it will attempt to refinance and retain possession of the hotel.
A 686-room hotel across the street from San Francisco’s convention center went back to its lender last month. In a deed-in-lieu of foreclosure transaction, Highgate gave up the Hyatt Regency San Francisco Downtown SoMa to lender Blackstone Mortgage Trust.
New York-based Highgate missed a balloon payment on a $250M interest-only loan backed by the property, the sixth-largest hotel in the city. The cost of the debt at the time of the deed-in-lieu filing totaled more than $290M.
Last July, at the request of a court-appointed receiver and a trustee for a lender, a Superior Court judge extended until March 2025 the deadline for the sale of two of the city’s largest hotels, the 1,919-room Hilton San Francisco Union Square and the adjacent 1,023-room Hilton Parc 55.
Park Hotel & Resorts handed the hotels back to the lender as the maturity approached on a $725M CMBS loan from JPMorgan Chase backed by the property. The value of the Hilton Union Square and Parc 55 hotel complex was appraised in June at $553.8M by KBRA, a drop of more than $1B from the $1.56B value when the mortgage originated in 2016, Trepp reported.
In May, JLL was tapped to market a non-performing loan backed by the Four Seasons San Francisco at Embarcadero. Westbrook Partners, which acquired the luxury hotel in 2019 for $127M, stopped making payments on the loan and was served a notice of default in March.
Hotel bookings linked to events at San Francisco’s Moscone Center plummeted from nearly 800,000 room nights before the pandemic to about 400,000 in 2024.
The San Francisco Travel Association is expressing confidence that convention bookings in the city will experience a significant recovery in 2025, with 30 events confirmed at Moscone Center expected to generate 659K of hotel room nights.
Source: GlobeSt/ALM