It is getting harder for the press to downplay the economic conditions driving major businesses out of California.
In what has become a regular announcement, avoided on a regular basis in the larger press industry, California is absorbing a regular string of announcements of major corporations shutting down operations or pulling out of the state entirely. These realities interfere with the fable of the state being a progressive utopia and venerated leftist icon Governor Gavin Newsom positioned as the wisest of politicians, so the severity of these moves has to be downplayed.
Late last month, insurer State Farm declared it would no longer be writing any new policies for homes and businesses, citing a number of negative factors such as “historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.”
There was a desperate defense to blame these factors on climate change, something the company did not mention. To say wildfires are a climate issue is a neutered claim while ignoring the well-established flawed forestry policies. It also does not explain how California has been specifically targeted by climate change. But just as those deflections were being laughed at, another corporate announcement was delivered, this one specific to the beleaguered city of San Francisco.
As that town has become mired in a self-created morass of illegality and incivility, businesses are becoming fed up with the permissiveness of the local government, as the light-on-crime approach is affecting their ability to operate. Over the past couple of years, store closures have been happening on the regular, with a mounting list of major names departing the area.
And since this list, there were two Nordstrom closings, as well as a Saks on 5th, the two-story T-Mobile flagship store, and the newsworthy closing of a major Whole Foods location after just one year, due to risks to its staff with crime in the area. More stores are expected to also shutter soon, and now comes a significant announcement from another major presence in the city.
The Park Hotels chain has come out with a news release that it will no longer operate not one but two large hotels in the San Francisco area: the Hilton Union Square location, and Parc 55 San Francisco. The company is looking to remove these hotels entirely from its portfolio, due to economic conditions in the region.
We believe it is in the best interest for Park’s stockholders to materially reduce our current exposure to the San Francisco market. Now more than ever, we believe San Francisco’s path to recovery remains clouded and elongated by major challenges – both old and new: record high office vacancy; concerns over street conditions; lower return to office than peer cities; and a weaker than expected citywide convention calendar through 2027 that will negatively impact business and leisure demand.
Between the two hotels, this affects nearly 3,000 rooms. Whether this will entail a sale or foreclosure remains to be realized, but a company taking the step to suspend payments on the loans rather than incur ongoing losses at those locations is a severe move. It also reflects what has been transpiring in the downtown area for some time now.
Currently in San Francisco, retail vacancy has risen to six percent, a level not seen in the city in nearly 15 years, but in the flashy downtown Union Station area, it is even more stark. From a glaring 14.2 percent in the last quarter of 2022, the past quarter saw the vacancies rise to over 15.5 percent. There is absolute corporate flight taking place in the city, and the local politicians attempt to put lipstick on this economic pig.
In a news conference last month, Mayor London Breed was defiant and lashed out at those willing to point out the fiscal calamity.
Those folks who don’t walk the streets in San Francisco, that don’t live in San Francisco, but they want to write about and commentate about San Francisco. I challenge you to come shop at the stores that you’re complaining about, which you probably never even stepped foot in the first place.
What the mayor misses is that you do not command that people arrive to your city, you are supposed to give them a reason to visit and shop, and to ensure their safety while doing so. That inability by the local leaders is why people are avoiding the area, and why businesses are gradually evacuating an economic fiasco.