SAN JOSE – After bankruptcy, the iconic Fairmont Hotel in downtown San Jose could help recover the city’s urban core as the region’s economy tries to recover from the coronavirus.
The 805-room Fairmont San Jose filed for bankruptcy on March 5 and closed its doors that same day, an abrupt shutdown that displaced guests, including the Vegas Golden Knights ice hockey team, who played the San Jose Sharks in an NHL game.
“The Fairmont can definitely thrive in the future once it has restructured its finances,” said Alan Reay, president of the Irvine-based Atlas Hospitality Group, which pursues the California hospitality industry.
The owners of the Fairmont San Jose Hotel have debts of at least $ 100 million and up to $ 500 million, and hundreds of creditors in the Cape. 11 Filing for bankruptcy to reorganize hotel debts.
“The fact that no one is talking about liquidation and that this is a reorganization says something about their confidence in the longer-term prospects for downtown,” San Jose Mayor Sam Liccardo said in an interview.
The hotel’s main owner, Eagle Canyon Capital, headquartered in San Ramon and headed by Sam Hirbod, is seeking far-reaching changes for the Fairmont to:
– Transition to a new hotel brand after the rejection of the existing hotel management contract
– Get suggestions from suitable hotel brands willing to provide substantial funding.
– Extend the mortgage loan maturity for the hotel.
“The Fairmont is a key icon in downtown San Jose,” said Nanci Klein, city director for economic development. “It is one of the largest hotels in the city and helps us to secure room allocations for events in the convention center and sports.”
The hotel expects to reopen within 60 to 90 days once the financial reorganization is complete.
“We look forward to welcoming convention, business, and leisure travelers back to the Fairmont after debt restructuring and hotel reservations return,” said Scott Knies, executive director of the San Jose Downtown Association.
The Fairmont San Jose recently underwent a makeover of its lobby and bar to introduce a new bar, lounge and dining experience within the hotel. The renovation cost $ 10 million.
The Fairmont Hotel’s largest unsecured debt, according to US bankruptcy records, includes: $ 3.48 million to Accor, a France-based company that owns and manages hotels, resorts and vacation properties; $ 2.28 million to Otis Elevator’s Sunnyvale office; $ 1.06 million owed to the City of San Jose; PG&E owes $ 995,100.
However, other debts, such as those related to the hotel property mortgage, were not listed.
In 2018, a Hirbod-run subsidiary paid $ 223.5 million for the hotel. At the time of the purchase, the group of buyers received a $ 173.5 million loan from the NS Income Opportunity REIT, according to the county’s real estate records.
In March 2020, this loan was assigned to a new lender, the CLNC Mortgage Sub-REIT, controlled by Colony Credit Real Estate. Colony Credit provides financing and debt financing for a range of commercial properties.
The Fairmont lost at least $ 18 million in 2020 and is set to lose at least $ 20 million in 2021, the hotel’s owners said.
These losses are just a reminder of how the economic troubles sparked by the coronavirus have gutted the travel, hotel and convention industries.
In Silicon Valley and the Bay Area, numerous hotels and restaurants have ceased operations and some companies have closed their doors for good.
More hotels across the country and in the state could file for bankruptcy or default. Reay believes lenders could get more impatient.
“Banks and lenders really have a follow-the-hearth mentality,” Reay said. “Now when some lenders come after borrowers, you will find more dominoes falling.”
Despite these difficulties and uncertainties, Reay believes the Fairmont could be part of an economic boom in San Jose, and especially downtown.
“San Jose will be back,” said Reay. “The convention business will come back.”