Fairmont Hotel in downtown San Jose files for bankruptcy

Fairmont Hotel in downtown San Jose files for bankruptcy

Upscale, iconic Fairmont in downtown San Jose closes doors — but will reopen within a few months


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

SAN JOSE — The Fairmont Hotel, a landmark in downtown San Jose, filed for bankruptcy on Friday and closed its doors — but says it will reopen and resume operations within two to three months.

The owners of the iconic, 805-room hotel said they closed the Fairmont while they attempt to find a management partner and extend the existing mortgage debt.

The Fairmont in San Jose is hardly alone with financial struggles amid the economic fallout unleashed by the coronavirus, which has chased away conventions and travelers from hotels.

“We know that by taking this difficult step we will come back a more vibrant hotel to the benefit of everyone in San Jose, including the vitality of the city’s downtown, nearby businesses, and Silicon Valley conventions in a post-COVID-19 world,” said Sam Singer, a representative for the Fairmont Hotel.

A growing number of hotels worldwide — and in the Bay Area — have tumbled into bankruptcy or faced problems with their financing.

“Sadly 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.

In all of 2020, just 14 notices of default for a delinquent loan were filed against hotels located in California, according to research statistics provided to this news organization by Alan Reay, president of Atlas Hospitality Group, which tracks the lodging market statewide.

In January 2021 alone, at least 20 notices of default were filed against hotels in California, Reay said.

“The hotels that have suffered the most are in business centers and convention center hotels,” Reay said. “That is definitely the situation with the Fairmont.”

The affiliate that owns the Fairmont San Jose hotel property listed debts that ranged from $100 million to $500 million, according to a filing with the U.S. Bankruptcy Court.

San Ramon-based Eagle Canyon Capital, whose president is Sam Hirbod, is the hotel’s principal owner and operator, the court records show.

“The hospitality industry has been absolutely crushed by the pandemic,” said Scott Knies, executive director of the San Jose Downtown Association.

Among the top creditors that have unsecured claims against the bankrupt hotel: the city of San Jose, which is owed $1.06 million, the court records show.

Sources said the hotel’s owners have a good relationship with its principal creditors and lenders.

“We will be back in 60 to 90 days with improved finances and a new hotel management team,” Singer said.

The hotel shifted the guests in the San Jose Fairmont to other lodging places in the vicinity.

Not all of the guest departures went smoothly, however. Kevin Simmonds, a San Francisco resident and writer who had scheduled a two-night stay and the Fairmont San Jose, stepped out for about three hours to enjoy the nice weather and put the finishing touches on a book. He returned to find a confusing situation at the lodging place.

“The hotel manager asked if I was staying at the hotel, I said yes, and she told me I had to leave,” Simmonds said. “I asked why and she said, ‘I can’t tell you.’ I said, ‘What do you mean you can’t tell me? This is insanity.’ She told me that the Fairmont directed all of the guests to go to the Hilton” nearby.

Simmonds asked the hotel manager if the Fairmont San Jose would be compensating guests for the lost night. “She said, ‘No, we are not going to compensate you.’ ” Simmonds said.

Simmonds eventually decided to drive back to San Francisco.

“I’m absolutely dumbfounded,” Simmonds said. “I knew there was nothing the front desk could do. But they could have at least treated me with dignity and respect.”

In 2018, a Sam Hirbod-led affiliate paid $223.5 million for the hotel. At the time of the purchase, the buying group obtained a $173.5 million loan from NS Income Opportunity REIT, county property records show.

In March 2020, that loan was assigned to a new lender, CLNC Mortgage Sub-REIT, which is controlled by Colony Credit Real Estate, which is a firm that provides financing and debt for an array of commercial real estate properties.

The Fairmont lost at least $18 million in 2020 and is projected to lose at least $20 million in 2021, the hotel’s owners said.

“We look forward to the Fairmont opening its doors in time for our downtown’s revival in the months ahead,”  Liccardo said.

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