Silicon Valley's largest hotel has officially shut its guest book and ceased new check-ins amid mounting financial woes that have forced it to close its doors.
The owners of the 803-room Fairmont San Jose property in San Jose, California, have filed for Chapter 11 bankruptcy protection as ongoing effects of the coronavirus pandemic and travel restrictions have accelerated revenue losses. The hotel said it has transferred about 50 guests, including the Vegas Golden Knights ice hockey team in town for a Saturday game, to nearby properties. It said all Fairmont staff members were laid off.
The sudden closure underscores the tumultuous year hotel properties across the country have had to endure as the pandemic ravaged the global tourism industry and corporate travel business all but disintegrated.
The Fairmont San Jose reported debts between $100 million and $500 million and listed hundreds of creditors, according to court filings for the ownership group, a limited liability company listed as FMT SJ LLC. According to CoStar, the ownership group for the South Bay property includes San Ramon, California-based Eagle Canyon Capital, which purchased the hotel in early 2018 for $250 million. The company did not return a request for comment.
At the time of the purchase, the hotel's daily average occupancy was in the mid-80% range.
STR, CoStar's hospitality analytics firm, reported occupancy rates below 40% for hotels throughout the greater San Jose area in the last full week of February. The current rates represent an almost 46% drop compared to the same period in 2020, days before regional lockdown measures and travel restrictions kicked off a turbulent year for properties across the country.
What's more, average daily rates are less than half the $198.54 average from that week last year. Rates currently average about $98 per night, according to STR data, a more than 50% drop compared to 12 months prior.
In a court filing, the owner said that it lost at least $18 million in revenue throughout last year and was on track to lose an additional $20 million this year. The filing comes on the heels of an ill-timed renovation, which included a revamped lobby and bar that cost about $10 million.
The owners said they plan to emerge from bankruptcy proceedings and evolve alongside the ongoing pandemic. As part of that plan, they said they are looking to transition the hotel to a new flag after rejecting the existing hotel management agreement. They intend to weigh proposals from other hotel brands that can provide a new source of financing and extend its current mortgage loan.
Ownership officials said in a statement that they hope to have a new brand under new management that has 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 hotel expects to reopen within 60 to 90 days once its financial reorganization is complete.