Silicon Valley Business Journal
San Jose in Deal to Sell Hayes Mansion for $47 Million
By Nathan Donato-Weinstein
With its handsome 1905 Mediterranean Revival main building, San Jose’s historic Hayes Mansion hotel and conference center looks like a million bucks.
Unfortunately, it sucks much more than that every year out of the city’s general fund just to pay the debt service.
Now the city is close to an all-cash deal to sell the historic property to a hotel investor for $47 million, enough to pay off the debt and then some.
“It’s a beautiful property and a great asset, but it’s a financial albatross to a city when saddled with $37 million in bonded indebtedness,” said San Jose Mayor Sam Liccardo in an interview on Thursday.
The potential deal — which must still be finalized — comes after multiple false starts over the years. Success this time around would underline rising values for hospitality assets in Silicon Valley after several years of strong growth in business travel. Previous attempts to sell the property didn’t produce a potential sale price big enough to completely pay off the debt.
This time around, the $47 million sale will be used to pay off the bond debt on the hotel property and other city assets, according to a city staff report.
Buyer info scarce
The city council on June 14 will consider authorizing city staff to proceed with a sale to Asha Companies, a Washington, D.C.-based investor.
That’s a different name than the one that first surfaced in February, when Mercury News reporter Ramona Giwargis reported that a firm called Global Bancorp had made an unsolicited offer for the hotel. Liccardo said he directed the city to undertake a broad marketing process rather than a direct sale. “The good news is, the process worked,” he said. “We found another buyer offering more.”
More information on that buyer wasn’t immediately available on Thursday. Jay Patel, the CEO of Asha Companies, didn’t immediately respond to a LinkedIn message.
His LinkedIn page identifies him as an executive at several companies, including one involved in telecommunications and several in oil and gas development.
A 2013 press release announced Asha Companies acquired 10 hotels totaling 860 guest rooms in North Dakota, Montana, Wyoming and Texas. The city staff report states that the company was “(f)ounded by hospitality industry veterans” and that “the company has a deep level of expertise operating and marketing destination resort properties. Staff met with AREI Hospitality executives, who have a profound appreciation for the historical nature of Hayes Mansion and plan to make capital investments in the property to ensure that it continues to be a beautiful and important community asset.”
The sale isn’t a done deal. According to a timeline included in the staff report, the purchase and sale agreement could be executed this summer, and escrow closing by mid to late fall of this year.
The Hayes Mansion, located at 200 Edenvale Ave., started off as just that — a 41,000 square foot mansion with 64 rooms for the Hayes family. Its Wikipedia entry notes that the mansion complex was self-contained, boasting “a power plant, a post office, railroad station, carriage stop, lodgings for 40 ranch hands, and a chapel.”
San Jose acquired the property in 1984 and a series of renovations and expansions followed in the 1990s and into the early 2000s. Today it contains 214 rooms as well as multiple conference rooms, a pool and spa, bar and grill and dining room. It’s surrounded by a city park that will remain owned by the city; the property for sale sits on about 6.3 acres.
Today the hotel is managed for a fee by Dolce International, which would not be retained under the new ownership. The property is listed on the National Register of Historic Places and is a city and state landmark.
Alan X. Reay of Southern California-based Atlas Hospitality, said that unique historical hotels can be attractive acquisition targets (and can take advantage of financial sweeteners such as federal historic preservation tax credits), but also come with challenges. “It’s got character, but they cost a fortune to run,” he said. “You run into things such as, how efficient is it from a utility and insulation standpoint.”
One disadvantage of the city selling off the hotel is that it will lose the possibility of owning an income generating asset free and clear after it pays off the bonds.
But the city will still get hotel taxes from travelers under private ownership and decades under city control haven’t resulted in it being anything but a drag.
“It’s quite possible there’s hidden value the city didn’t realize,” Liccardo said. “But the city is not the entity best suited to run a hotel. There’s some activities we should leave to the private sector.”