Today’s show is a retrospective look at one of my favourite hotels in North America. It’s a hotel that I’ve stayed at many times over the years.
The Fairmont San Jose — Silicon Valley’s largest hotel — has filed for bankruptcy and is closing its doors, at least temporarily. On Friday of last week, the hotel informed guests rather abruptly that they needed to leave. That included an NHL hockey team that was in town to play against the San Jose Sharks.
If it does reopen, though, it likely will be under the flag of another brand.
FMT SJ LLC, which operates the hotel, filed for Chapter 11 bankruptcy protection Friday. The company expects the iconic 33-year-old hotel, located downtown on the east side of Plaza de Cesar Chavez, to remain closed for two to three months. The company hopes to use its bankruptcy to get an extension on its mortgage debt, end its agreement with Fairmont Hotels, and find a new hotel brand to partner with that will provide the hotel with new financing.
The company purchased the hotel from Maritz, Wolff & Co., a real estate investment firm headed and co-founded by Lew Wolff, one of downtown San Jose’s most influential developers.
Wolff’s firm purchased the hotel from the San Jose Redevelopment Agency for a reported price of $36.7 million in 1996. At the time, the hotel was at risk of falling into foreclosure; Maritz, Wolff & Co. helped to stabilize its business. It also constructed a 14-story annex to the hotel that was completed in 2002.
This is a marquis hotel. It’s in a great location. It’s a terrific property. The dispute at this stage is about money. It’s not a question of whether this hotel will re-emerge as a going concern. Of that there is little doubt. What’s not 100% clear is the ownership structure of the hotel. Will it be the same owner operator? Will the lender take a haircut? Or will the lender attempt to foreclose and take possession of the hotel? Will the hotel owners require an injection of capital to stay alive and retain their ownership position?
At a time when about 20% of the hotels in North American are in default on their mortgage debt, we can expect to see more surprises like this.