SAN JOSE – The Fairmont Hotel, a landmark in downtown San Jose, filed for bankruptcy Friday and closed its doors, but says it will reopen and resume operations in two to three months.
The owners of the iconic 805-room hotel said they closed the Fairmont while trying to find a management partner and expand existing mortgage debt.
The San Jose Fairmont is hardly alone with financial struggles amid the economic consequences unleashed by the coronavirus, which has kicked out conventions and travelers from hotels.
“We know that by taking this difficult step we will return to a more vibrant hotel for the benefit of everyone in San Jose, including the vitality of downtown, nearby businesses and Silicon Valley conventions in a post-COVID-19 world. , ”Said Sam Singer, a representative of the Fairmont Hotel.
An increasing number of hotels around the world – and in the Bay Area – have gone bankrupt or have had problems with their financing.
“Unfortunately, this is a local reflection of the devastation the hospitality industry has suffered globally,” San Jose Mayor Sam Liccardo said in an interview with this news organization.
Throughout 2020, only 14 defaults were filed for a delinquent loan against hotels located in California, according to research statistics provided to this organization by news by Alan Reay, president of Atlas Hospitality Group, who a monitoring of the statewide housing market.
In January 2021 alone, at least 20 non-compliance notices were filed against California hotels, Reay said.
“The hotels that have suffered the most are in business centers and convention center hotels,” Reay said. “Without a doubt, this is the situation at Fairmont.”
The affiliate who owns the Fairmont San Jose hotel property listed debts ranging from $ 100 million to $ 500 million, according to a case filed in U.S. Bankruptcy Court.
Eagle Canyon Capital, based in San Ramon, whose president is Sam Hirbod, is the main owner and operator of the hotel, according to court records.
“The hospitality industry has been absolutely crushed by the pandemic,” said Scott Knies, executive director of the San Jose Downtown Association.
Among the major creditors who have unsecured claims against the bankrupt hotel: the city of San Jose, to which $ 1.06 million is owed, according to court records.
Sources said the hotel owners have a good relationship with their major creditors and lenders.
“We will be back in 60 to 90 days with better finances and a new hotel management team,” Singer said.
The hotel moved guests of the San Jose Fairmont to other accommodations in the vicinity.
However, not all guest outings worked smoothly. Kevin Simmonds, a San Francisco resident and writer who had scheduled a two-night stay at the Fairmont San Jose, went out for about three hours to enjoy the good weather and put an end to a book. He again found a confusing situation at the place of accommodation.
“The hotel manager asked me if I was staying at the hotel, I said yes and he told me I had to leave,” Simmonds said. “I asked why and he said,‘ I can’t tell you. ’I said,‘ what do you mean you can’t tell me, this is crazy? ’He told me that the Fairmont directed all the guests to go to the Hilton ”nearby.
Simmonds asked the hotel manager if the Fairmont San Jose would compensate guests for the lost night. “She said,‘ no, we won’t compensate you, ’Simmonds said.
Simmonds finally decided to drive back to San Francisco.
“I’m absolutely baffled,” Simmonds said. “I knew the reception couldn’t do anything. But at least they could have treated me with dignity and respect. “
In 2018, an affiliate run by Sam Hirbod paid $ 223.5 million for the hotel. At the time of the purchase, the buyer group obtained a $ 173.5 million loan from NS Income Opportunity REIT, according to county property records.
In March 2020, this loan was assigned to a new lender, CLNC Mortgage Sub-REIT, which is controlled by Colony Credit Real Estate, which is a company that provides financing and debt for a number of commercial real estate properties.
The Fairmont lost at least $ 18 million in 2020 and is expected to lose at least $ 20 million by 2021, hotel owners said.
“We hope the Fairmont opens its doors in time for the reactivation of our center in the coming months,” Liccardo said.