The Mercury News

Lodging firms take over historic Bay Area hotel

Real estate group gains control of delinquent loan

- By George Avalos gavalos@ bayareanew­

A historic hotel nestled atop ritzy Nob Hill in San Francisco that is burdened by a delinquent real estate loan has landed new owners, public records indicate.

The Huntington Hotel is gaining new ownership now that its delinquent loan has been taken over by an affiliate controlled by Highgate, a hotel company, and Flynn Properties, a real estate management and investment firm, mortgage documents filed on March 16 with the County Recorder's Office show.

“Having both Highgate and Flynn Properties involved means that the Huntington will continue to be operated as a hotel,” said Alan Reay, president of Irvine-based Atlas Hospitalit­y Group, which tracks the California lodging sector.

New York City-based Highgate's expertise includes working with lenders to take control of hotels that are in financial distress, such as the Huntington Hotel at 1075 California Street on Nob Hill.

San Francisco-based Flynn Properties is involved in commercial real estate investment­s that include hotels and office buildings.

“Highgate and Flynn Properties intend to restore and elevate every aspect of The Huntington Hotel to the very highest standard, returning it to its original glory while reestablis­hing it as the single finest luxury hotel in San Francisco,” the two real estate firms said in a statement on Monday.

In August, a $56.2 million loan from Deutsche Bank New York Branch that was provided to the Huntington Hotel's owner, flopped into default, documents on file with the San Francisco Recorder's Office show.

Deutsche Bank scheduled several auctions whereby it might seize the hotel through foreclosur­e of the loan or sell the property to an outside bidder. None of the auctions transpired, with the most recent public sale scheduled to occur on March 16.

Instead of an auction, Deutsche Bank struck a deal to enable the Highgate and Flynn Properties-led affiliate to assume ownership of the loan, ef

fectively purchasing the mortgage on the Huntington Hotel and giving them control of the historic property.

Four real estate documents that sketched out Highgate's and Flynn Properties' assumption of the loan were filed on March 16 with the county Recorder's Office.

Los Angeles-based Woodridge Capital bought the 135-room hotel in 2018, paying $51.9 million, according to real estate documents.

The financial woes and the mortgage delinquenc­y that have engulfed the Huntington Hotel are reminders that the coronaviru­s pandemic continues to afflict the lodging, travel, restaurant and leisure sectors, sometimes in unexpected ways and places.

San Francisco's economy in particular continues to reel from the aftermath of the business shutdowns ushered in by state and local government officials.

The 12-story Huntington Hotel was originally built in 1922. It closed its doors in recent years amid the coronaviru­s shutdowns. It could be years before the hotel resumes business: The hotel is due to reopen in 2025.

Now, the involvemen­t of Highgate and Flynn Properties and their assumption of the Deutsche Bank loan

could launch a process to stabilize the hotel's finances under Highgate's stewardshi­p — and possible ownership.

“Highgate, through its affiliates, is involved with lenders across the U.S. in the loan resolution process, at times preparing workout evaluation­s and also acting in the capacity of a receiver,” the company states on its website. “With extensive experience in this field, Highgate serves as receiver for 200-plus financiall­y distressed hotels.”

The company states on its website that it has 87,500 hotel rooms under management. The Highgate portfolio includes hotels in the United States, Europe, the Caribbean and Latin America.

“The collection represents a dynamic array of urban assets, independen­t lifestyle and luxury properties, resorts, as well as full and select service and extended stay hotels,” Highgate stated on its website.

Flynn Properties states that it was founded in 1994 and was involved in office building investment­s on the West Coast as well as investment­s in well over 100 hotel properties.

“In addition to 115 premium-branded select service and extended stay hotels in 29 states, Flynn Properties' hospitalit­y investment­s also include the luxury resorts Esperanza and the Chileno Bay Resort, both located in Los

Cabos, Mexico; the Carneros Resort and Solage, both located in the Napa Valley; and the Hotel Madeline in (Colorado mountain resort) Telluride,” Flynn Properties said on its website.

The hotel's new owners stated they intend to restore the old hotel to its former glory.

“Under our stewardshi­p, The Huntington will reclaim its mantle as an indispensa­ble component of the San Francisco community, through a revitaliza­tion project that will celebrate its heritage while making significan­t upgrades to meet the expectatio­ns of today's guests,” said Arash Azarbarzin, Highgate's chief executive officer.

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