UNITE HERE Advisory: Holders of Hilton USA Trust 2016-SFP CMBS face uncertainty as special servicer changes hands

Wells Fargo commercial mortgage servicing unit to be acquired by Trimont, backed by alternative investment firm Värde Partners, which invests in distressed hotel properties

SAN FRANCISCO--(BUSINESS WIRE)--Holders of Hilton USA Trust 2016-SFP commercial mortgage pass-through certificates should be aware of a looming transaction involving the loan’s special servicer, Wells Fargo Bank, N.A. The loan backing the certificates has been in special servicing since June 2023, when Park Hotels & Resorts announced that it would stop making interest payments and would not pay off the loan at maturity. A receiver has been appointed to manage the collateral, the Hilton San Francisco Union Square and Parc55 hotels, and the receiver has engaged Eastdil Secured to market the properties for sale.

In August of this year, Trimont LLC announced that it had entered into a definitive agreement to acquire Wells Fargo’s non-agency third-party Commercial Mortgage Servicing (CMS) business in a transaction backed by Värde Partners, a “global alternative investment firm.” Trimont is controlled by investment funds managed by Värde.

Värde is also an active acquirer of hotels. In 2022, Värde formed a $1 billion joint venture with Hawkins Way Capital to acquire distressed hospitality assets.ⁱ The joint venture has purchased a 764-key former DoubleTree hotel, a 655-key former Marriott hotel in Manhattan, and the 1220-key Sheraton Boston. Like the Sheraton Boston and the two Manhattan properties, the Hilton San Francisco Union Square and Parc55 hotels are large, full-service, city-center hotels.

Trimont’s acquisition of Wells Fargo’s CMS business is expected to close in early 2025. The San Francisco Superior Court judge who appointed the receiver for the San Francisco Hilton properties has given a deadline of March 31, 2025, for the receiver to complete a third-party sale, after which point the properties will be subject to non-judicial foreclosure.

Värde’s Form ADV Brochure dated July 23, 2024, notes that the ownership of Trimont by funds it manages “creates certain conflicts of interest for the Firm” due in part to Trimont’s servicing of asset-backed securities which may be held by Värde’s clients. It also notes that conflicts may arise if different funds it manages have investments “in different levels of an entity’s capital structure” and that “Decisions about what actions should be taken in a troubled situation, including whether or not to enforce claims, whether or not to advocate or initiate a restructuring or liquidation inside or outside of bankruptcy, and the terms of any work-out or restructuring raise conflicts of interest.”ⁱⁱ

Trimont says on its website, “We are fully committed to our role as a trusted, ethical and independent partner, avoiding conflicts-of-interest entirely by making certain to never involve itself in any direct competition with clients or their business priorities.”ⁱⁱⁱ Certificate holders should ask the special servicer to explain how it will avoid a conflict of interest with respect to Hilton USA Trust 2016-SFP when it is controlled by a firm which is also in the business of investing in distressed hotel assets.

For more information, visit San Francisco Hilton Strike Watch.

ⁱ https://varde.com/varde-and-hawkins-way-form-1-billion-joint-venture-to-acquire-value-add-and-distressed-hospitality-and-housing-assets/
ⁱⁱ https://files.adviserinfo.sec.gov/IAPD/Content/Common/crd_iapd_Brochure.aspx?BRCHR_VRSN_ID=920186
ⁱⁱⁱ https://trimont.com/#our-edge