SAN JOSE – The owner of the bankrupt and closed Fairmont San Jose wanted to sell the hotel in 2020.
The Fairmont San Jose closed its doors on March 5th, the day it filed for bankruptcy, to reorganize its shaky finances, months after the twin-tower hotel went on sale. The owners of the 805 room hotel hope to reopen sometime in May or June.
The coronavirus outbreak drove business and leisure travelers worldwide. This turn in the economy has gutted the finances of hotels and resorts in the Bay Area and elsewhere.
The Fairmont San Jose has not been immune to these coronavirus-related economic problems, according to the bankruptcy filings of SC SJ Holdings and FMT SJ, which are controlled by Eagle Canyon Capital of San Ramon, whose president is chief executive officer Sam Hirbod.
“Since the beginning of the pandemic, the hotel has suffered significant losses and continues to suffer,” said the hotel owner’s court records.
Occupancy was typically 64.6% before the coronavirus broke out around March 2020. During the year-long shutdown until the bankruptcy filing, the occupancy rate fell to 7.7%.
The average room rate fell from $ 254 to $ 154 per night. The hotel is losing around $ 2 million a month.
“When the pandemic continued, the debtors looked for a longer-term solution,” according to the documents that the hotel owners had submitted as part of the bankruptcy proceedings.
The hotel owners hired Jones Lang Lasalle in August 2020 to look for investors for the hotel.
Options include: “Buying the hotel or providing debt or equity financing sufficient to fund the hotel’s operations during the pandemic,” court documents said.
“Jones Lang LaSalle ran an extensive application process,” but ultimately the suggestions were uncomfortable.
Shortly after the failed efforts to sell the hotel, the owners of the Fairmont San Jose hired CHMWarnick, advising hotel owners, to see if top hotel operators would be interested in managing the hotel if the hotel could be managed under their brand name. Many large operators were intrigued, as court records show.
“One brand said they would consider funding the hotel as part of the package,” the court records read. “Some of the brands that have shown interest in managing the hotel would offer significant marketing prospects, including robust guest and booking pipelines.”
Along the way, it also emerged that the hotel owner and hotel operator Accor Management US, formerly Fairmont Hotel & Resorts, were embroiled in several disputes over the future of the hotel.
Accor Management declined to provide financial assistance to the hotel, accommodate the hotel owners, or propose solutions beyond cost-cutting measures, according to court documents.
In late February, Accor Management requested payment of overdue administration fees of $ 2 million. Accor Management also filed a lawsuit with an arbitration tribunal to block the hotel’s closure.
The owner of the Fairmont claims that Accor Management did not help the hotel owner adequately address the crumbling finances of the Fairmont San Jose.
“The business relationship between Accor Management and the hotel owners is irreparable,” said the hotel owners in the court records.
Now hotel owners believe that the best way to renew the hotel’s finances and debts involves an important milestone: finding a new hotel manager and operator who is also willing to provide a $ 45 million cash inflow to stabilize it of the accommodation complex. The prelude to this is the termination of the hotel management contract with Accor.
In 2018, a group led by Hirbod paid $ 223.5 million for the hotel. At the time of the purchase, NS Income Opportunity REIT’s purchasing group received a $ 173.5 million loan.
In March 2020, this loan was made to a new lender, CLNC Mortgage Sub-REIT, controlled by Colony Credit Real Estate. Colony Credit provides financing and debt for a range of commercial properties.
The Fairmont lost at least $ 18 million in 2020 and is expected to lose at least $ 20 million in 2021, hotel owners said in court records.
The hotel owners have made it clear in the court records that they are looking for a long-term financial solution for the hotel in downtown San Jose. This would be a welcome contrast to how the owners kept the hotel afloat during the economic slump.
“The debtors have been working out of their own pockets for several months, but they need a longer-term solution,” said the hotel owner in the court files.