Hayes Mansion: Lessons learned
In our summer doldrums, the news this past week was that San Jose’s yearold plans to sell the money-losing Hayes Mansion have fallen through. Disappointed by a Washington, D.C., developer, San Jose once again has put its white elephant on the market.
The loss could be measured in opportunity and cash. Over the last year, the city has put roughly $5 million of debt payment and subsidies into the hotel-conference center in the Edenvale section of San Jose. In the last two decades, the cost has exceeded $60 million.
The good news — well, there isn’t much good news, but this will pass as faint hope — is that the collapse of the proposed sale offers a few lessons learned. Here are four of them:
If an offer sounds too good to be true, it usually is. More than a year ago, the
Asha Companies, a hotel developer, offered $47 million for the property, which needs substantial work to be made into a top-flight hotel. That was roughly $11 million more than the city’s $36 million debt on the center.
The real estate experts I know shook their heads at the deal. It didn’t pencil out, particularly because the Hayes Mansion is far from the center of the valley. Enthusiastic about the offer, the city embarked on negotiations anyway. It wasn’t until Asha Companies failed to make a $1 million deposit in mid May that talks fell apart.
Check the bank account of a bidder upfront.
If you rent an apartment in the valley these days, chances are that the landlord will make you produce bank statements and payroll stubs for several previous months. The city did not do that in the beginning. City officials acknowledge that they did not require Asha to provide “proof of funds’’ in the purchase agreement, trusting that there would be time later in the process for the financial check. San Jose economic development officials say they will correct that with future bidders.
Hold a public session about what the Hayes Mansion should be.
One of the problems with the city’s Hayes Mansion discussions is that they have been conducted in closed session. The City Council has invoked the real-estate exception to the state’s open meetings law, saying they would be at a disadvantage if their position was disclosed publicly. That limits public understanding and scrutiny.
The answer? The council should convene a public study session to talk in detail about the operating costs of a hotel, the debt burden, and what physical features need repair. They’ve hired enough consultants over the years to dragoon a few of them to answer questions.
It may be that the Mansion, originally built by the Hayes family in 1905 and later expanded by the city, is too far from the beaten path to serve successfully as a hotel and conference center. While it’s important to retain public access to historic parts — and the Mansion functioned decently before the big expansion — the complex may do better now with permanent residents who do not check in and out.
Remember Pablo Sandoval.
If you’re a Boston Red Sox fan, you know the story. After the 2014 season, third baseman Pablo Sandoval fled the Giants for Boston, where he was a monumental bust. The Red Sox released him recently, although they still owe him roughly $50 million over the next three years. In business, this is called “a sunken cost.” You acknowledge you made a mistake, take the criticism, and move on (though, in an irony, it looks like Sandoval has returned to the Giants’ organization).
The city may need to do something similar to what the Red Sox did here — whether that involves selling the mansion for less, or agreeing to pay down part of the debt. It was an ambitious folly to think that a city that struggles to fill potholes could own a hotel. San Jose struggles to fill potholes. Maybe we’re better acknowledging the sunken cost of our white elephant.