SAN JOSE – The Fairmont Hotel, a landmark in downtown San Jose, filed for bankruptcy and closed its doors on Friday, but says it will reopen in two to three months and resume operations.
The owners of the iconic 805-room hotel said they closed the Fairmont while trying to find a management partner and extend the existing mortgage debt.
The Fairmont in San Jose is not alone in financial difficulties amid the economic ramifications of the coronavirus, which has driven conventions and travelers out of hotels.
“We know that taking this difficult step will bring us back to a more vibrant hotel for the benefit of everyone in San Jose, including the vitality of the city center, nearby businesses and the Silicon Valley conventions in a post-COVID -19 world, ”said Sam Singer, a representative of the Fairmont Hotel.
A growing number of hotels worldwide – and in the Bay Area – have either gone bankrupt or are in trouble with their financing.
“Sadly, this is a local reflection of the devastation the hospitality industry has suffered worldwide,” said San Jose Mayor Sam Liccardo in an interview with this news organization.
Throughout 2020, only 14 overdue loan defaults were filed against California hotels, according to research statistics provided to this news organization by Alan Reay, president of Atlas Hospitality Group, which tracks the statewide lodging market.
In January 2021 alone, at least 20 letters of default were filed against California hotels, Reay said.
“The hotels that have suffered the most are in business centers and convention center hotels,” said Reay. “That is certainly the case with the Fairmont.”
The affiliate that owns the Fairmont San Jose hotel building reported debts ranging from $ 100 million to $ 500 million, according to a filing with the US Bankruptcy Court.
San Ramon-based Eagle Canyon Capital, whose president is Sam Hirbod, is the primary owner and operator of the hotel, court records show.
“The hospitality industry has been absolutely crushed by the pandemic,” said Scott Knies, executive director of the San Jose Downtown Association.
One of the main creditors to have unsecured claims on the bankrupt hotel: the city of San Jose, which owes $ 1.06 million, according to court records.
Sources said the hotel’s owners have good relationships with major creditors and lenders.
“We’ll be back in 60 to 90 days with improved finances and a new hotel management team,” said Singer.
The hotel relocated guests at the San Jose Fairmont to other overnight accommodations in the area.
However, not all guest departures went smoothly. Kevin Simmonds, a San Francisco resident and writer who had planned a two-night stay at the Fairmont San Jose, got out for about three hours to enjoy the beautiful weather and put the finishing touches on a book. He returned to discover a confusing situation at the lodge.
“The hotel manager asked if I was staying at the hotel, I said yes, and she told me to leave,” said Simmonds. ‘I asked why and she said,’ I can’t tell you. I said ‘what do you mean, you can’t tell me, this is madness.’ She told me that the Fairmont had instructed all guests to go to the nearby Hilton.
Simmonds asked the hotel manager if the Fairmont San Jose would compensate guests for the lost night. “She said, ‘no, we’re not going to compensate you,’” said Simmonds.
Simmonds eventually decided to drive back to San Francisco.
“I am absolutely stunned,” said Simmonds. ‘I knew there was nothing the reception could do. But at least they could have treated me with dignity and respect. “
In 2018, a Sam Hirbod-led partner paid $ 223.5 million for the hotel. At the time of the purchase, the buying group received a $ 173.5 million loan from NS Income Opportunity REIT, the county data shows.
In March 2020, that loan was assigned to a new lender, CLNC Mortgage Sub-REIT, which is controlled by Colony Credit Real Estate, a company that 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 by 2021, the hotel’s owners said.
“We look forward to the Fairmont opening its doors in the coming months to the revival of our center in the coming months,” said Liccardo.