Possible hotel deal could offer clues about Bay Area lodging market strength

By GEORGE AVALOS | gavalos@bayareanewsgroup.com | Bay Area News Group

PUBLISHED: January 9, 2024 at 5:30 a.m. | UPDATED: January 9, 2024 at 2:02 p.m.

SAN JOSE — The Signia by Hilton hotel, a downtown San Jose icon, is up for sale in a deal that may produce a diagnosis about the Bay Area lodging market’s health in the wake of coronavirus-spawned economic afflictions.

The sale efforts involve the 541-room hotel tower at 170 South Market Street, which is the one-time northern tower of the former two-tower hotel complex in downtown San Jose.

Just a few weeks ago, the 264-unit former south tower of the hotel was bought by a Bay Area real estate firm that intends to convert the facility to housing for San Jose State University students.
Mill Valley-based Throckmorton Partners, acting through an affiliate, paid $73.1 million to buy the southern tower of the Signia by Hilton San Jose.

That purchase price is part of an overall package valued at $113 million that includes wide-ranging revamps, upgrades and construction efforts to convert the southern tower to SJSU residences. Students could begin moving into the tower ahead of this fall’s semester.

Now, the stage is set for both of the hotel towers to land new owners.
The lodging unit of CBRE, a commercial real estate firm, is circulating a sales brochure that has been provided to this news organization.

“CBRE Hotels is pleased to offer, on an exclusive basis, the opportunity to acquire the Signia, the landmark hotel property for downtown San Jose and Silicon Valley.”

A potential offering price for the downtown San Jose hotel wasn’t immediately available. Sam Hirbod, a Bay Area business executive, is the principal owner of a group that bought the hotel in 2018.

“The hotel benefits from its proximity to the market’s primary demand generators, including the San Jose McEnery Convention Center, San Jose State University, SAP Center at San Jose, the San Jose Museum of Art, and the Tech Museum of Innovation,” the brochure states.

In addition to the guest rooms, the lodging tower contains a completely renovated lobby and check-in area, along with a revamped pool and cabana section.

Four food and beverage outlets and 55,000 square feet of meeting spaces are also key hotel features.
In 2018, the Hirbod-led group paid $223.5 million for what was then a two-tower, 805-room hotel.

“This is a trophy asset,” said Alan Reay, president of Atlas Hospitality Group, which tracks the California lodging market.

It’s also possible that the hotel might not be sold. The current owners are seeking to refinance the existing loan on the hotel and find a new lender to replace the current lender for the property, Brightspire Capital, according to sources familiar with with the situation.

Like many other lodging facilities in the nine-county region, the downtown San Jose hotel, then known as the Fairmont San Jose, enjoyed robust occupancy levels and business conditions in 2018 and 2019.

The arrival of the coronavirus in 2020, however, prompted state and local government agencies to impose wide-ranging business shutdowns, draconian restrictions that chased away hotel guests at a time when the global travel markets nosedived and left hotels nearly empty.

The hotel’s financial woes turned brutal and in 2021, the hotel tumbled into bankruptcy and closed its doors.

In 2022, the hotel became a Signia by Hilton and resumed operations after it emerged from bankruptcy.

By some measures, the Signia Hilton is turning in a better financial performance than it produced in 2019, the final full year before the onset of the corona virus outbreak. These hopeful trends are contained in the marketing brochure that CBRE Hotels is circulating.

The affiliation with Hilton and the hotel’s renovation are among the major factors that have fueled the upswing in the hotel’s financial fortunes.

The hotel’s ownership group has spent $58 million on a massive upgrade and repositioning of the property, according to information provided previously to this news organization by the owners.

“2023 banquet and catering revenues will surpass 2019 levels by almost 10%,” the marketing package states. “Food and beverage profit margin has moved from 9% in 2019 to over 40% in 2023.”

The hotel, which has an occupancy level of 50%, is showing steady improvement in revenue per available room when compared with the property’s competitors in the Bay Area.

The CBRE brokers also believe multiple opportunities exist to improve the hotel’s operations and positioning in San Jose’s urban core.

“The property’s ground floor can be repositioned to leverage its place as the focal point of downtown San Jose, including activating underutilized spaces such as the restaurant on South First Street, the ground floor spa area, retail spaces and Club Regent,” the CBRE marketing package states.

If the hotel is sold, the price is likely to be well below what it would take to replace the lodging complex with an identical hotel built from scratch, in Reay’s view.

“Large full-service business-oriented hotels have continued to struggle and we are seeing examples of that in San Francisco,” Reay said.

In San Francisco, the Hyatt Regency Downtown SOMA hotel’s owner missed the balloon payment on a $250 million loan in recent days. In June, the owner of the Hilton Union Square hotel and the Parc 55 hotel ceased making loan payments and and gave the keys to the properties back to the lender.

External factors have to improve before business-oriented hotels such as the Signia by Hilton San Jose can see brighter prospects.

“It really is a question that depends on when the office market and the meetings and and conventions business returns,” Reay said.