Short-term financing OK’d for S.J.’s Fairmont
Bankrupt hotel owner will seek new brand for iconic lodging
The owner of the bankrupt and shuttered Fairmont Hotel in San Jose has won early rounds in the battle to refresh the iconic hotel’s shattered finances, court papers show.
A U.S. bankruptcy court judge has approved the Fairmont Hotel’s plans for shortterm financing of $2.5 million to bolster current operations.
Separately, the Fairmont owners filed papers seeking approval to scout for a new brand and alliance with a national hotel operator that would be willing to provide at least $45 million in capital to help the hotel prosper on a long-term basis.
“The debtors believe that they can negotiate a favorable management agreement with a national hotel brand coupled with $45 million or more in capital,” according to documents filed with the U.S. Bankruptcy Court.
The court filing indicated that the $45 million is a crucial building block in the restoration of the landmark hotel’s finances.
“The new capital will help fund operations, including debt service … and place the hotel on the best path for long-term success,” the court papers stated.
U.S. Bankruptcy Court Judge John Dorsey also approved short-term financing for the hotel’s current operations.
Separately, court papers also provided a glance into the brutal financial blows that the coronavirus dealt the hotel.
The hotel shut its doors on March 5 and shifted guests to other nearby hotels — including some departures that were handled in an abrupt fashion, according to some hotel guests.
The 805-room lodging destination hopes to reopen by sometime in May or June.
The Fairmont San Jose recently was revamped with a makeover of its lobby and bar slated to usher in a new bar, lounge, and dining experience at the hotel. The renovation cost $10 million.
“Since the pandemic began, the hotel has suffered, and continues to suffer significant losses,” according to documents filed with the bankruptcy court. “The hotel was losing almost $2 million per month” during the year leading up to the hotel’s shutdown on March 5.
During the one-year pe
riod before coronavirus linked business shutdowns began in March 2020, the hotel’s occupancy levels were around 64.6%. Once the business shutdowns began, occupancy levels plummetted to around 7.7%, the hotel stated in a court filing.
“The average room rate fell from $254 to $154 per night,” the hotel owner stated in a court document. “At those occupancy and room rates, the business was not sustainable.”
The hotel’s owners made it clear in the court papers that the coronavirus outbreak has battered the Fairmont’s operations.
“The hospitality industry was amongst the hardest hit by COVID-19,” court filings stated. “This is particularly true here because a significant amount of the hotel’s business was derived from conventions and business travelers. During the pandemic, conventions are not being held due in part to government-imposed gathering restrictions.”
In 2018, a group headed by San Ramon-based business executive Sam Hirbod 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. Colony Credit 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 have stated in court papers.
The hotel owners stated that the key is to obtain enough financing to navigate the hotel through a tricky economic landscape for the leisure, hospitality, and travel sector.
“While the long-term prospects for the hotel are positive, until the pandemic eases and related restrictions are lifted, the hotel will continue to face significant challenges and require supplemental capital to fund operations” and pay off the property’s mortgage, the hotel owners stated in court papers.