Westfield San Francisco Centre

[ClownLoach]

Westfield is abandoning San Francisco Centre and allowing it to be foreclosed on.

https://www.sfgate.com/bayarea/article/ ... 148703.php

[Alpha8472]

What went wrong?

I remember around 2006, when I visited the newly restored Emporium Dome. The mall was busy and filled with crowds of shoppers and tourists. The entire area was vibrant and clean. You felt safe and there were so many shops and restaurants. There was a huge new Borders Books and a new Century Theater. A brand new Bloomingdale's West Coast Flagship opened up.

There was a fantastic Nordstrom with circular escalators and oil paintings on the walls.

There were so many things to see and do.

Now everything has changed.

[buckguy]

Nothing very remarkable about this. Every large mall owner has let any number of their properties be foreclosed---they create shell corporations for individual malls that make this possible, without adverse effects on their overall credit. Westfield has been slowly leaving the US for quite awhile. I'm actually surpised they didn't sell this property much earlier-on.

[ClownLoach]

Nothing very remarkable about this. Every large mall owner has let any number of their properties be foreclosed---they create shell corporations for individual malls that make this possible, without adverse effects on their overall credit. Westfield has been slowly leaving the US for quite awhile. I'm actually surpised they didn't sell this property much earlier-on.

Westfield is not a credible source at this juncture as they're not actually carrying out what they committed to a few years ago which was a complete sale and exit of all US properties by the start of 2023.
As a foreign entity they're really under no obligation to honor their word with the SEC in the US. They said they're leaving the US quite some time ago and selling all their assets, but that hasn't actually happened. They have sold many "B" and "C" malls off piecemeal, but they continue to actually make new investments and expansions such as the very expensive new Topanga Social concept they're piloting and preparing to build at their other "A" malls like UTC. They did just sell a smaller mall in Florida and a building in Versailles.

They're an opportunistic firm that is playing the market with their portfolio very wisely. They're paying down debts by selling the "B" and "C" units which will leave them with little debt and only an "A" tier fleet of extremely valuable malls. Since announcing the supposed US exit they've also launched a costly new US retail center media agency to service their malls here, an obvious sign they aren't really planning to leave anytime soon. They also just started construction on a new phase of the UTC San Diego property where they're redeveloping the old Nordstrom wing (note this is separate from the former Sears which is a Seritage project). When it's an "A" property they're spending money to expand, redevelop, and more. It is notable that retail investments these days don't really increase property value unless they're projects that convert to a different use such as apartments, so that means the money they're investing would not necessarily bring any improvement in future sale price. Hence the properties getting investments are most likely being planned as long haul investments unless they can get someone with local interest and deep pockets like the guy that bought Santa Anita to acquire an "A" tier property at a premium price. When it's a "B" or "C" they're not putting any money in and they just search for an investor while it sits stagnant. The only "A" quality sale was the aforementioned Santa Anita which was bought by a developer and then Westfield turned around and signed a new contract to operate the mall for him. So that winds up being more of the type of deal we've seen recently with Vegas casinos selling their buildings to a 3rd party then leasing back in an effort to reduce debt. Sure, MGM doesn't "own" the Bellagio building anymore, but they still "own" the Bellagio as a business.

When they're done with shedding the "B" and "C" properties I actually expect them to go back and purchase more malls in the US. There are other less aggressive owners getting drowned by the underperformance of their "B" and "C" malls and they'll wind up having to part ways with their best "A" tier properties to bail themselves out. I am sure Westfield will be first in line with cleaned up books and lots of room on the credit line. This is a smart operator and they're playing to win.

Which is exactly why the San Francisco Centre property situation is so unusual. Westfield is not one of the low end firms that is giving up properties to the banks left and right. Although they do make the so called "shell companies" there is still significant financial impact at other firms because of the loss of assets which in turn does reduce available credit options. Less assets means less available credit, period. Nobody can walk away truly free and clear... Except URW in this specific case. Apparently the debts had been restructured at some point to fully insulate the company (and their ownership partner Brookfield) from this specific property. They've made it clear that this specific property can be lost to foreclosure without any repercussions to URW's credit. That is not how things are unfolding at any other firm. Clearly someone at Westfield anticipated the deterioration of the San Francisco market quite some ways back in time and became concerned enough to change the financial structure of the financing of that mall to insulate them. They're clearly losing a fortune because of all the money they invested previous, but this was until very recently an "A" tier property worth the investment. Very few malls if any anywhere move from an "A" immediately to failure and would certainly not have been forseen by anyone a decade ago when the mall burnout was already in full effect. That makes this situation newsworthy when the hundreds of other closing malls nationwide are never a surprise.

[rwsandiego]

...

Westfield is not a credible source at this juncture as they're not actually carrying out what they committed to a few years ago which was a complete sale and exit of all US properties by the start of 2023....

Glad I am not the only one who was thinking this. My other thought was "Hmm, an easy way to exit a property without having to bother with a sale."

...they also just started construction on a new phase of the UTC San Diego property where they're redeveloping the old Nordstrom wing (note this is separate from the former Sears which is a Seritage project)...

I could be wrong, as the UTC redevelopment was approved several years before I moved from SD to Phoenix, the redevelopment of the former Nordstrom wing/store was a condition of permitting the to expand the mall in the way they did. Regardless, they could have sold the mall.

...Clearly someone at Westfield anticipated the deterioration of the San Francisco market quite some ways back in time and became concerned enough to change the financial structure of the financing of that mall to insulate them...

Shoplifting has been a serious problem at the mall for more than a decade, so much so that the San Francsico Police Department considered putting a substation there in 2011. My guess is Westfield planned an exit strategy and are now executing on it.

The last few times I visited SF there were several vacancies at the mall. Also, the quality of the restaurants in the food hall made it more of a food "court" than "hall." The last time I was there nothing in the "food hall" looked appealing and I ate at Nordstrom instead.

...Very few malls if any anywhere move from an "A" immediately to failure and would certainly not have been foreseen by anyone a decade ago when the mall burnout was already in full effect. That makes this situation newsworthy when the hundreds of other closing malls nationwide are never a surprise.

Despite the decade-long shoplifting issues, you're right that no one would have foreseen this a decade ago. Another factor in play is the number of office workers in downtown San Francisco has dwindled. That, plus a lack of residential development, and the rise of online specialty shopping are a perfect storm for this mall.

They appear to have followed Park Hotel's (Hilton spin off) lead... who is turning the Union Square Hilton and Union Square Parc 55 back to lenders. Both hotels were in particularly nasty locations based on current conditions in the area. Previously they were a little iffy if you went the wrong way out an exit, now they are outright bad no matter which way you go...

The interesting thing about the Hilton San Francisco and the Parc 55 Hilton is the hotels still charge pretty high room rates. Seems like an odd strategy when the hotel is ostensibly having a hard time paying its lenders. That said, the hotels always seem to be booked, which would lead one to believe that they are in OK financial shape. Sounds like opportunism is at play here. Of course, the reason behind the default doesn't help San Francisco one bit.

[ClownLoach]

Century Theaters announced they will close down at Westfield San Francisco Centre this Friday.

[Alpha8472]

I visited the movie theater when it opened in 2006 as the Flagship Century Theater. It had luxury black faux leather seats. Prior to that, theaters used fabric seats.

This started a trend of faux leather theater seats.

It was a very successful theater for many years as movie theaters were packed up until the pandemic. Then the theater never fully recovered due to so many tech workers moving out of the city. The city was kept alive with tons of rich tech workers, office workers, and tourists. Now the offices are practically empty, the tech workers have fled, and the tourists have been frightened away.

[SamSpade]

Century Theaters announced they will close down at Westfield San Francisco Centre this Friday.

https://www.ktvu.com/news/century-theat ... l-transfer
Confirmation in news media. Of note, this tenant was also on the cusp of a lease renewal.

[storewanderer]

The interesting thing about the Hilton San Francisco and the Parc 55 Hilton is the hotels still charge pretty high room rates. Seems like an odd strategy when the hotel is ostensibly having a hard time paying its lenders. That said, the hotels always seem to be booked, which would lead one to believe that they are in OK financial shape. Sounds like opportunism is at play here. Of course, the reason behind the default doesn't help San Francisco one bit.

Park Hotels REIT is a spin off from Hilton Corporate some years ago. So the real estate is owned by those REIT investors. Meanwhile, on the operations side, Hilton Union Square and Parc 55 are both corporate managed/corporate operated Hilton properties. So those high rates come from corporate. And their charges for anything extra there (food, drinks, etc.) are literal robbery even for a hotel in a major city.

Parc 55 was closed for a long time for COVID; I do not recall when it reopened but I don't think it has been opened back up for very long, maybe a year. They kept delaying the reopening of Parc 55 for whatever reason (probably low occupancy at Hilton Union Square). I am sure none of that helped the financial results of this pair of hotels.

The real test here will be if Hilton Corporate continues to manage the hotels after the real estate changes hands. If they continue to manage the hotels, I think it will be safe to say this was a maneuver of some sort to help the REIT's shareholders. If the hotels end up closed or under a different/lower flag entirely I think it is clear the hotel performance is a major issue. It is entirely possible Park overpaid for these hotels when they were split off from Hilton Corporate and a write down related to COVID/San Francisco's major issues landed them in this spot of wanting to exit the asset.

In the case of Union Square I wonder if some large chunk of rooms are out of service in need of repairs/renovations. Closing for COVID and then opening back up especially with such old buildings isn't always as easy as just turning the lights back on. These structures were designed for constant operation, not closing for months.

[Alpha8472]

The theater was a hidden gem. There is the AMC Metreon across the street that plays many of the same movies. This type of competition only worked back when the Metreon was so crowded that the auditoriums were sold out. People could go to the Century Theater and find empty seats. I liked the atmosphere of Century better with real butter on the popcorn and mostly big movie screens.

The Century theater was on the top floor which was far from the food court on the lower level. The escalators to the top had a good view, but it was a long climb. Years ago, Borders Books was right next to the escalator and got tons of business. There were Express elevators from the ground level to the theater as well.

Century had a very upscale decor with granite tiles. AMC just seemed like a bland crowded multiplex.