San Francisco real estate defaults recover from pandemic lows


For decades, the 12-story historic Huntington Hotel has stood proudly on Nob Hill, hosting a host of celebrities while offering breathtaking views of San Francisco. But recent visitors to the building and the hotel’s website received a brief message that the hotel, its spa and the famous Big 4 restaurant would be closed “until further notice”.

That’s partly due to Deutsche Bank, the property’s mortgage lender, threatening to foreclose on the hotel owner — a possible sign that defaults are rising from pandemic lows.

So far, the city’s Assessor-Recorder has tallied 307 default notices in 2022, compared with 214 in 2020 and 184 in 2021. A default notice is the first step a mortgage lender takes in the foreclosure process, and it is used to notify property owners that they intend to forfeit the property unless they get the money owed.

The relatively low number of defaults during the pandemic is due to moratorium policies and the closure of courts and offices involved in foreclosures, said Jason Estavillo, managing partner at law firm Estavillo Law Group, which focuses on real estate.

Now, with some of those policies expiring and courts reopening, Estavelo said he’s seen an increase in calls from homeowners threatened with foreclosure.

For commercial real estate, Estavillo said foreclosures take time to kick in, as leases expire and are not renewed, leaving owners unable to fill space or meet mortgage obligations. Numerous commercial leases signed at the height of the city’s economic boom will expire in the coming years.

The current number of default notices is still a fraction of the sky-high figures seen during the Great Recession, which saw foreclosure rates rise sharply due to the securitization of mortgage debt and other risky financial schemes. In 2009, 2,836 default notices were filed with the city.

While the majority of default notices this year have been for individual homeowners who have defaulted on their mortgages, a few have been for commercial real estate, particularly hotels and office buildings with high vacancy rates that are struggling with a lack of guests. Estavillo added that these trends could spell trouble for homeowners looking to refinance.

“My thinking is that we’re heading for another recession, interest rates are going up, and people can’t refinance their properties,” Estavelo said. “It’s not like what happened from 2007 to 2010, but I just saw the writing on the wall.”

Case in point: Vijay Investments, owner of the Civic Center Hotel at 790 Ellis Street. Threatened by foreclosure from mortgage lender Oriental Bank, the bank said the group owed $5.24 million on a $6 million loan.

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Yotel San Francisco, which opened in 2019 as the brand’s first West Coast location, and its mortgage lender, Starwood Properties, also received a default notice in April, which said the hotel owner owed $707,000 on a $64.5 million loan.

Other buildings at risk of foreclosure include 88 First Street and 508 Mission Street, on the corner of the Salesforce Tower and acquired by Chinese developer Oceanwide Holdings Group in 2017 as its now-defunct Oceanwide Center part of a larger project. The default notice said the company owed $1.16 million on a $16.3 million loan.

The city’s chief economist, Ted Egan, attributes the current rise largely to the domino effect of rising interest rates.

“I would say some of that might be awareness that working from home has something to do with commercial real estate value, but I think the more likely thing driving it right now is just higher interest rates,” Egan said.


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