Hotel Distress Rising

Bay Area hotels are running into a problem that looks small on paper and brutal in real life: loans made in 2018 through 2021 are coming due in 2026, and owners now have to refinance at higher rates on buildings that still earn less than they did before 2020. In the Bay Area, that has already turned into defaults, foreclosures, deed-in-lieu handovers, and auction sales. (therealdeal.com) San Francisco’s hotel revenue per available room fell from $203 before the pandemic to just under $73 after it hit, and by the end of 2025 it had only climbed back to $155. Oakland recovered from $59 to almost $90, and Silicon Valley recovered from just under $55 to around $120, but all three markets still sit about a quarter below their 2019 peaks. (therealdeal.com) That gap matters because hotel debt does not wait for a slow recovery. Atlas Hospitality Group president Alan Reay told The Real Deal he expects distress to keep building for another one to two years because many properties are still operating at a deficit even as revenue improves. (therealdeal.com) The recent examples are not obscure roadside inns. The Barnes in Union Square sold after a loan default, Stanford Court was marketed under looming foreclosure, two Hyatt House hotels in the East Bay sold at foreclosure auction, and Blackstone bought Stanly Ranch in Napa out of foreclosure. (therealdeal.com) In Santa Clara County, the 208-room Wild Palms Hotel in Sunnyvale and the 91-room Hotel Avante in Mountain View were hit with a notice of default on a $54.1 million loan that matured on January 9, 2026. Those two hotels had lifted combined monthly revenue to about $860,500 by the three months ending in March 2025, but the loan still became due in full. (hotel-online.com) The Oakland Marriott City Center shows the same math on a bigger stage. The 500-room hotel defaulted on a $100 million loan after Bay Area tourism and convention demand failed to return to pre-2020 levels, while remote work kept corporate travel weaker than lenders expected when the debt was written. (costar.com) At the same time, California just added a second force to the market: housing money. On April 10, Governor Gavin Newsom’s office announced $145.4 million in Homeless Housing, Assistance and Prevention funding across eight regions, including $49.9 million for Santa Clara County and nearly $4.1 million for Solano County. (therealdeal.com) (hcd.ca.gov) The state says about 80 percent of that funding is meant to support housing creation and retention, with the rest going to outreach, mental health services, and workforce support for unhoused residents. The California Department of Housing and Community Development also says Homekey funding can be used to acquire or rehabilitate buildings for people experiencing or at risk of homelessness. (therealdeal.com) (hcd.ca.gov) That does not mean a downtown hotel automatically becomes apartments. It does mean a distressed hotel owner, a lender trying to cut losses, and a county with fresh housing money are now more likely to look at the same building and see a reuse deal instead of a long workout. (therealdeal.com) (hcd.ca.gov) So the Bay Area is moving into a strange phase where bad hotel balance sheets can create openings for buyers, nonprofit operators, and cities. The next one to two years look less like a clean tourism comeback and more like a sorting process in which some hotels refinance, some sell at steep discounts, and some get pulled into California’s housing pipeline. (therealdeal.com 1) (therealdeal.com 2)