The landmark Fairmont Hotel, located in the heart of downtown San Jose's cultural and entertainment district, is temporarily closing, it was announced Friday.
FMT SJ LLC, the operator of the iconic hotel, filed for Chapter 11 reorganization Friday, temporarily closing the hotel for as much as three months while it finds a management partner and extends the existing mortgage debt.
The LLC is owned by San Ramon-based Eagle Canyon Management, which bought the hotel in January 2018 for more than $220 million from longtime property owner Maritz, Wolff & Co., led in part by Silicon Valley developer Lew Wolff.
The hotel abruptly ceased operations Friday, relocating its few remaining guests to rooms at nearby hotels at ownership's expense.
“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, the hotel's representative.
Singer said the hotel is expected to gear up for operations again in roughly 60 to 90 days.
Additionally, Singer said the hotel has suffered from the impacts of COVID-19. As a result of the pandemic, all conventions for 2020 and 2021 have been cancelled, and occupancy throughout the pandemic has been less than 7 percent. The hotel lost at least $18 million in 2020 and is projected to lose at least another $20 million in 2021, according to the hotel owner.
Singer said he is optimistic that the hotel's secured lender will work cooperatively to ensure the hotel comes back stronger after its reorganization and as the region and the nation come out of the pandemic.
When the hotel reopens in mid-2021, ownership expects it will have a new manager and brand; one with the ability and willingness to infuse tens of millions of dollars of capital into the hotel and its operations, and a robust pipeline of future convention business for the hotel.
The impacts of the pandemic have been significant, Singer said. “The owner is committed to a process that will ensure the hotel's long-term viability and drive business both to the hotel and to San Jose's important downtown and convention center,” he added.
The hotel is a landmark 805-room property at 170 South Market St. The 20-story, two-tower hotel has 65,000 square feet of state-of-the-art meeting and event space, three restaurants with bars, a cafe bakery, a fitness center, and a rooftop pool and gazebo. The hotel features grand ballrooms for large conferences and conventions as well as intimate spaces for smaller gatherings.
Not to worry San Jose…
President Biden, the dementia poster-boy in chief- will fill up the Fairmont in “No” time with the masses of invading illegal aliens he is letting into our country.
If not, the usual crowd of communists at city hall will fill up the Fairmont with; vagrants, unemployed Hookers, child molesters, Grandma rapists and to relieve the overcrowding in Hell; some really nasty, foul tempered demons.
David S. Wall
Oh come on Goldilocks, Chapter 11 is a tool of smart ass lawyers to screw everyone out of money owed, except the lawyers.
Why do you Commi’s keep calling us Qanon, what is that a coed word for “queer nation” .
Your pretty vile yourself Goldberg.
Uncle Joe has already announced his plan to get undocumented Democrat’s out of shipping containers is to fill up hotels with them.
Weren’t you watching CNN?
“Closes for now”
It wouldn’t be surprising if the hotel were sold again, including to a DEVELOPER.
Otherwise it re-opens some time later, at higher rates, probably. Given what has happened since 2008 and now with much more federal spending and its being the talk of the nation (as those in DC try to dispel it), inflation can be “blamed” for the increase in rates.
Mr Gunn,
Exactly. Bankruptcy is a savvy play to make lenders take a hair cut, the feelings of the resentocult not withstanding. Actually its genius because the envy class gets a nice dopamine hit of schadenfreude, even its a placebo, and think theyre winning.
David S. Wall,
Totally agree.
Fill it to the brim with the human life forms scoured from the banks of Guadalupe Creek and from under the overpasses.
Rename it Tweaker Towers.
Ms. Jill
Let’s see Mr. Trump files for bankruptcy and wins the Presidency, Ms. Carrasco files for bankruptcy and gets a council seat. Seems like the world looks to those that try and fail with as much respect as those that try and succeed. Its the ones that sit around and point out how dumb everyone else for trying something in place of actually trying something for themselves that world passes by.
Cities file for bankruptcy, companies do, and so do people. It is a savvy move and the banks never really lent real money anyway it is all fraction reserve lending. Attaching morality to filing bankruptcy misses the point of the entire system, making a mistakes is not a sin and if everyone in the world was afraid of making mistakes, we’d still be living in grass huts.
https://www.youtube.com/watch?v=AsXGzB0hDUs
This town needs a family to come and take care of this house, no one getting rich off real estate there:
https://www.zillow.com/homedetails/39-Caspian-Ave-Caspian-MI-49915/2073825456_zpid/
Above average High School, monthly costs are ~$150 if you put $5000 down. MHH Income about $25000. ES, MS, and HS about 1.4 miles away. 12% of families below the poverty line.
A town with true four seasons.
Head over here to get some work done and a caffeine hit:
https://contrastcoffee.com/iron-river-menu/
Bring the kids here when they get an A for some pancakes:
https://goo.gl/maps/u9rpkUi7NL2qu2878
Just north of a 1.5M acre nation park, area has more lakes than people probably.
https://en.wikipedia.org/wiki/Chequamegon%E2%80%93Nicolet_National_Forest
This place runs through town:
https://goo.gl/maps/roU2h1n7TFZD4kYW8
The kids could head out on bikes and not come home till 10PM, like when I grew up.
But why not complain about the Fairmont and the deep inherent injustices of bankruptcy law instead while you make your boss and landlord rich working your life away and your kids stuck in school system that gives zero Fs – literally, seems like more wise way to live your life.
If the lockdown does not end soon, does the hotel really come back? I doubt it.
Coming in under just 2000 in population McAuthur looks to be a town looking for new life only a family can bring. This half acre lot home is backed up against State of Ohio property and while could us a bit of elbow grease to give that homely touch, can’t beat an estimates $184 in monthly costs in a town with a $26000 MHH Income. This town could really use someone to come in and make this a home.
https://www.zillow.com/homedetails/107-Linden-Ln-Mc-Arthur-OH-45651/2075628869_zpid/
Even at minimum wage of $8.80 working full time single income household, you are looking at rough housing burden of 10%. Of course, if your housing costs are $184 a month with a 30 fixed loan, why not just work a 100 hours a month and see more of your kids? More income just means more taxes and less kid time.
Grab a decent cup of joe at
https://www.yelp.com/biz/the-spot-on-main-jackson-2?osq=Coffee+%26+Tea
Nice State Park nearby
https://goo.gl/maps/E4wHUeS2xGPbBmPRA
Seems like all it would take is to throw a dart at a map of United States and find a far better place to raise kids than the Bay Area.
Why is this so hard for so many people?
SG, in response to your 10:12 am post.
Any employment lost would be employment created by the hotel, and losses following Chapter 11 reorganization would be expected to be considerably less than the 100% loss if the hotel closed permanently.
If you don’t think it can be practical to forgive debts in the interest of future productivity then you best stay clear of 20th century history, during which the International Money Fund forgave billions of Third World debt and the US billions in Allied and Axis debt.
The “chronic compulsions” and “false promises” you attribute to corporations are also classic behaviors of substance abusers, the only difference being that virtually all substance abusers are guilty of committing such transgressions (compared with relatively few corporations). You accuse me of making false comparisons and then turn around and provide supporting language. Thank you.
Also, given that the SJ Fairmont has been in business for 34 years, your insinuation that the incentives the city used to entice its construction played any part in its current survival strategy seems delusional, to say the least.
The historic town of Rockport situate on the western shore of the mighty Ohio River has five solid homes for under $82000. Now is a great opportunity to buy this diamond in the rough and with a little hard work and a $5000 down payment, you could join the ranks of home ownership.
Above average middle and high schools await your children along with a chance to attend Perdue or some other University of Indiana University at state resident rates. Restaurants aplenty in nearby Owensville and Evansville.
https://www.zillow.com/homedetails/716-North-St-Rockport-IN-47635/85711520_zpid/
Buy three and live in one, in 10-15 years you can retire and your tenants will be grateful for the chance to live and work in such a great place.
PART I: The Rise and Fall and the Rise and Fall of the San Jose Fairmont
There is a good deal of essential background to the Fairmont story that has been overlooked and under reported by all local media, including this Bay City News piece. The following provides a fuller version of the historical record and can help to better ground the discussion regarding the significance of the announced Fairmont bankruptcy.
A Fairmont San Jose Timeline
1985-1987: The Rise…
In 1985 the former San Jose Redevelopment Agency (RDA)—controlled by the San Jose City Council (https://www.sanjoseca.gov/home/showpublisheddocument?id=11319)–reached an agreement for the construction and operation of a hotel with two private developers: a) the Swig, Weiler and Dinner Development Company, a privately-owned and San Francisco-based real estate company whose chairman, Melvin Swig, and heir to the Fairmont Hotel chain (https://en.wikipedia.org/wiki/Melvin_Swig) and b) Kimball Small Properties, a San Jose-based property development company with significant experience in downtown San Jose (https://www.legacy.com/obituaries/mercurynews/ obituary. aspx?n=kimball-west-small&pid=194189273&fhid=11022; https://sanjosespotlight.com/ pioneering-downtown-san-jose-developer-kimball-small-dies/). At the time, and for many years after, the Fairmont development, along with the McEnery Convention Center, were seen by city officials as the fundamental bases for revitalizing San Jose’s downtown (https://www.spur.org/publications/urbanist-article/2013-04-04/shaping-downtown-san-jose; https://www.cp-dr.com/articles/node-1303; http://www.metroactive.com/ papers/metro/10.09.97/montgomery-9741.html).
Total construction costs for the original Fairmont Hotel towers, completed in late 1987, was $140 million, financed mostly through a $100 million loan arranged by the two developers. In addition, the RDA provided $38 million taxpayer dollars in subsidies toward original construction costs, as well as for ground floor retail operations during the hotel’s first decade of operation (https://www.spur.org/ publications/urbanist-article/2013-04-04/shaping-downtown-san-jose; http://www.metroactive.com/papers/metro /10.09.97/montgomery-9741.html).
1987-1996: …and The Fall…
For most of its first decade in business the Fairmont lost millions although, because it was held privately by the Swig family, exactly how many millions is not known. At its low point in 1991, the Fairmont property was valued at $61.5 million on the Santa Clara County Assessor’s rolls, suggesting significantly diminished valuation. In 1995, the Swig family decided to sell its controlling interest to Los Angeles-based real estate developer Maritz, Wolff and Company (represented by Lew Wolff) and partnered with Saudi Arabian investor Prince Alwaleed bin Talal.
The new investors purchased the property in 1996 for $36.7 million at a time of rebounding hotel revenues, about one-quarter of the costs for developing the Fairmont property up to that point. The conditions of the sale included debt forgiveness from private banks and the RDA selling the new owners the land beneath the Fairmont towers for $3 million plus 16% of hotel profits after Wolff and Alwaleed bin Talal recouped their initial $36.7 million purchase price (https://www.bizjournals.com/sanjose/stories/1997/11/17/focus1.html; https://www.bizjournals.com/sanjose/news/2021/03/05/the-fairmont-san-jose-files-bankruptcy-downtown.html; https://www.mercurynews.com/2007/10/06/san-joses-gamble-on-fairmont-hotel-wins-praise-20-years-later/).
1997-2018: …and The Rise…
The Wolff-Alwaleed bin Talal partnership, with City support, added the 14-story Annex, completed in 2002 at a cost of $77.9 million, increasing hotel capacity from 535 to 805 rooms. The RDA provided an additional $9.5 million in subsidies for the addition in exchange for 16% of hotel profits after owners recouped their construction investment costs (https://www.emporis.com/buildings/ 118580/fairmont-hotel-san-jose-ca-usa; https://www.emporis.com/buildings/135246/ fairmont-hotel-annex-san-jose-ca-usa; https://www.mercurynews.com/2007/10/06/san-joses-gamble-on-fairmont-hotel-wins-praise-20-years-later/). The expanded hotel, therefore, initially cost the Wolff and Alwaleed bin Talal less than $112 million, a hotel they owned, operated, renovated and from which they profited for some 21 years.
In early 2018, SJ SC Holdings, an investment group controlled by San Ramon-based Eagle Canyon Capital, whose primary executive is Sam Hirbod, paid $223.5 million for the Fairmont in addition to assuming as much as $16 million in debts on the property. At the time of sale, the hotel was officially assessed by the county at $123 million (https://www.hotel-online.com/press_releases/release/san-joses-iconic-fairmont-hotel-has-traded-hands-for-223-5-million/; https://www.mercurynews.com/ 2019/09/16/fairmont-hotel-in-downtown-san-jose-plans-wide-ranging-lobby-ground-floor-renovations/). Thus, the Wolff-led investment group profited from two decades of robust hotel operations and sold the property for about twice as much as they initially invested in it.
2019-2021: …and the Fall…
In 2019 SJ SC Holdings undertakes a significant, $10 million renovation of the Fairmont Hotel entry, lobby and ground floor restaurants, lounges, bars and amenities. The onset of the COVID-19 crisis in early 2020 resulted in a sharp decline in hotel stays nationwide and locally with the Fairmont incurring $18 million in losses for 2020 as a whole. Losses in 2021 are expected to be another $20 million. The ownership group of the hotel closed its doors and filed for Chapter 11 (reorganization) bankruptcy on March 5, 2021 seeking an extension of its mortgage debt and infusions of new money and new ideas from hospitality investors (https://www.mercurynews.com/2019/09/16/fairmont-hotel-in-downtown-san-jose-plans-wide-ranging-lobby-ground-floor-renovations/; https://www.bizjournals.com/sanjose/news/2021/03/05/the-fairmont-san-jose-files-bankruptcy-downtown.html).
We should have never supported Solyndra, that’s for sure!
PART II: What’s “Our” Cut of the Deal?
As noted in PART I, through the San Jose Redevelopment Agency (RDA), San Jose residents subsidized at least 27% of the initial construction and operating costs of the privately-owned Fairmont Hotel during 1985-1995. Public funds also subsidized about 12% of the construction costs of the hotel Annex completed in 2002. In total, the City underwrote private accumulations of wealth with at least $47.5 million in direct taxpayer subsidies and was forced to sell a public parcel asset in the process. The City did retain ownership of the underground garage and the leasehold improvements on retail shops on the ground floor of the Fairmont Annex (collectively assessed at $5.7 million in 2010 https://www.sanjoseca.gov/home /showpublisheddocument?id=11319).
RDA subsidies were conditioned on future distributions of hotel profits after initial private investments were recouped by the first two sets of owners. Such distributions only started flowing to the City in 2001, some 16 years after entering into the agreement with the initial investors/developers (Swig and Small). In the first 6 years of profit distributions, the City received a total of $4.2 million, about $700,000 per year, according to the RDA. In addition, income from the garage and retail space leases summed to about $1.8 or about $300,000 per year (https://www.mercurynews.com /2007/10/06/san-joses-gamble-on-fairmont-hotel-wins-praise-20-years-later/). That’s about $1 million per year in annual profit-sharing returns to the City during 2001-2007 or about $7 million in total.
The RDA was disbanded in 2011 and data on any continuation of the profit-sharing arrangements could not be found. If we assume they did continue through 2019, the City would have collected an additional $12 million for a total of about $19 million (keeping in mind that the period after 2001 were characterized by good years as well as the very bad years of the Great Recession (2008-2011) during which the hotel industry was devastated (https://www.costar.com/article/619312263)).
It therefore appears that the City’s subsidies of about $47.5 million over a 17-year period through 2002 were “rewarded” with about $19 million in dividends during the 19-year period 2001-2019, less than half the initial “investment.” Meanwhile, builder Kimball Small and his associates and the Lew Wolff and Alwaleed bin Talal partnership and their associates walked away with tens of millions in profits, underwritten by San Jose taxpayers. (Revenues from property taxes and from hotel room taxes are not included as “dividends” for the City as these would accrue regardless of any subsidization agreements with hotels or other businesses.)
The meager returns to the City for its considerable contributions are, in reality, the dividends earned by private businesses from their cozy relationships with City officials over the years and, in this case, starting with former Mayor Thomas McEnery. More proof that investments in grooming and enabling pliable politicians usually pays off (https://sanjosespotlight.com/santa-clara-county-bracing-for-bruising-budget-decisions-next-year/#comment-31307), usually even more than investments in business assets and enterprises.
Solyndra …
The valley and lower Peninsula are full of boom town rats, digging for gold, with governments getting into the game for various (often self-serving) reasons. While a growth-choked center of the industry has its problems, think of other places that are in decline and especially suckered with false hope. Add corruption, too, and remember, so many Californians are fluffy compared to these eastern players.
(Included is the Syracuse example featuring local company Soraa. And as with Buffalo, ask yourself if you could trust Sacramento and local politicians with any scheme to boost development in the Central Valley and elsewhere outside the major metros. At least Soraa’s successor, also local, has stuck around a while.)
https://nypost.com/2018/07/13/cuomos-buffalo-billion-was-beyond-corrupt/
https://www.investigativepost.org/2020/08/23/buffalo-billion-audit-shock-and-ugh/
https://www.syracuse.com/business-news/2018/01/ny_taxpayers_built_90m_factory_in_dewitt_for_firm_that_walked_away_didnt_create.html
https://www.syracuse.com/galleries/IQ7RMKKP2JE6PCHIAZHUUBDAIA/
How about tax incentives to lure business into town? Yah or Nah?
Steven, I guess that we will just have to disagree on this one.
PART III: Alternate Pasts
In the mid-1980s, housing affordability in San Jose and the region was already a problem (https://www.mercurynews.com/?returnUrl=https%3A%2F%2Fwww.mercurynews.com% 2F2018%2F09%2F06%2Fsan-jose-tops-list-for-least-affordable-housing-in-u-s%2F%3FclearUserState%3Dtrue). When the Fairmont project was initiated in 1985, and for nearly a decade after it was completed, the City’s Redevelopment Agency (RDA) owned the land beneath the hotel (see Part I above). As a condition of the sale of the financially-stressed hotel to its second set of owners/investors in 1996, the RDA sold that land to the new investors for $3 million plus a one-sixth share of hotel profits (see PART I above). The city could have used its land assets and the upwards of $50 million in public revenues it ultimately gave to private hotel investors to build city-owned, affordable.
For contextual and comparative purposes, consider the three-tower Campus Village project was completed in 2005 on the San Jose State University (SJSU) campus at a cost of about $205,000,000. That complex houses about 2,320 people yielding an average cost of $88,362 per living space in 2005 (https://www2.calstate.edu/csu-system/transparency-accountability/audit-reports/Documents/construction/2006/ConstructionSanJoseCampusVillage.pdf; https://www.housing.sjsu.edu/docs/HousingBrochure_2020.pdf).
In 2019, the per person monthly rental fee in that Campus Village complex was about $1,200 inclusive of off-street parking, furniture, kitchen appliances, all basic utilities (including wi-fi internet and internet-based TV) and access to common areas and amenities and services within short walking distances (see PART I). That comes to about $14,400 per year or about one-sixth of the construction costs of the average living space in the Campus Village complex. In about six years, plus or minus, SJSU could basically recoup its initial outlays in the original housing, excluding inflation, maintenance and upkeep.
In the same way that the city and SJSU entered into a joint agreement to build and operate the Martin Luther King, Jr. Library in the mid-1990s (https://www.sjlibrary.org/), the city could have contracted with SJSU to build and manage housing units similar in quality, efficiency and convenience as those on campus in the mid-1980s. Construction costs were much lower in the mid-1980s when the Fairmont project was initiated. A generous estimate of the construction cost of a living space like those built for the SJSU community would be $80,000 in those days. Thus, a $50 million investment on city-owned land back then could have produced more than 600 quality living spaces for both students and non-students with ample amenities and conveniences. With steeply rising land values and rents over the subsequent decades, leasing such units even at a 25% discount relative to the market rates would have produced a steady stream of revenues to recoup costs, maintain and improve the housing and amenities and to generate surpluses to expand such housing outside the orbit of money-grubbing, profit-seeking real estate operators and landlords.
I disagree with Steven on most everything he’s thinks is true and correct.
PART IV: Alternate Futures
The Chapter 11 bankruptcy of the Fairmont Hotel last week offers the City of San Jose an opportunity to regain land and taxpayer resources it has frittered away on this project since the mid-1980s (see PARTS I and II above). As the successor to the now-defunct Redevelopment Agency (RDA), the City still owns the underground 500-car parking garage and the leasehold improvements on retail shops on the ground floor of the Fairmont Annex that were collectively assessed at $5.7 million in 2010. The Fairmont owners also have an outstanding debt of about $1 million to the City (https://www.mercurynews.com/2017/12/15/fairmont-hotel-in-downtown-san-jose-slated-for-250-million-sale/; https://www.sanjoseca.gov/ home/showpublisheddocument?id=11319; https://www.mercurynews.com/ 2021/03/08/bankrupt-fairmont-hotel-spur-downtown-san-jose-rebound-covid-tourism/). And, of course, the City can rightfully claim that the entire project would not have been possible without the financial largesse and political backing they have provided consistently since the mid-1980s.
It’s now an excellent time for the City to invoke and leverage its rights, property and prerogatives vis-à-vis the Fairmont owners to expand affordable housing in the city. In particular, the City should pursue taking ownership of some portion of the 22-story hotel tower and convert it to city-owned housing. The hotel has sleeping room, ballroom, meeting room and ground level facility and amenity space of upwards of 500,000 square feet, about 90% of which is sleeping space. (This excludes the ample common areas like the pools and fitness rooms (https://www.fairmont.com/san-jose/; https://teneohg.com/ member-hotel/fairmont-san-jose/#overview).
The City should use all the legal, financial and political leverage to take, say 200,000 square feet of sleeping space to convert into 200-300 affordable housing units. This could be done through a joint ownership and management arrangement with San Jose State University (SJSU) using the Martin Luther King, Jr. Library joint City-SJSU ownership/management agreement as a basis (https://www.sjlibrary.org/). SJSU has a 60-year history in building, maintaining and managing affordable student, faculty and staff housing in an efficient and cost-effective manner (see Part III above).
The City should take full advantage of this opportunity to reassert its rights and prerogatives vis-à-vis the real estate interests who, with the help of successive City Councils, have walked away with benefits enabled by the City while saddling residents with the burdens of increasingly expensive housing.
HB
Arguing with an broke, unemployed lifetime renter who hasnt paid rent in a half a year isnt worth five minutes of your time. Actually some of these other authentic communists have far better insight and research skills, better to engage them to expand your thinking and sharpen your arguments.
ECONOCLAST
You are right this is a great time for the city to exert its rights, call back these loans, and get its equity out. If the state was as competent, forceful, self directed as you fantasize it is, it would. It’s not competent because it exists to only to serve those who pull the strings. This is why your entire world view is absurd. Government is and has always been in the interest of those in power and their corruptors. Not in the interest of its citizens, residents, or “status” inhabitants
USA
USSR
Iran
Venezuela
The only solution is to starve the state, not feed it.
Steven: Are you on drugs or just high on hate? You try to put words in my mouth and wonder off into areas that no one has brought up. I would wager that you like to hear the sound of your voice so much that you wouldn’t take yes for an answer.
The former Fairmont is an ideal candidate for a Project Homekey conversion to affordable housing. Let’s face reality, business travel is not going to return to downtown San Jose in the quantity necessary to sustain so many expensive hotels. Trade shows and conventions may eventually return in some limited form, but San Jose is not a destination that convention organizers are attracted to. The two hotels attached to the convention center, along with several nearby hotels, are sufficient for conference and trade-show attendees.
Adding small kitchens to the hotel rooms would be pretty easy, just with a microwave, a refrigerator, and a small two burner induction stovetop.
The banquet business could continue and provide jobs for the new residents.
The last time the hotel was sold, in 2018, it was for $223.5 million, and it’s certainly worth less than that now. 800+ studio apartments would cost about $500 million to build from scratch. For probably $40 million the hotel rooms could be converted to apartments.
Mr. Devlin,
Very good points and true, far more effective use of funds than new development. And they could rent out spaces in the underground garage to pay for services.