SAN JOSE — A landmark downtown San Jose hotel is poised to benefit from the sale of one of its two towers for San Jose State University student housing — and a new restaurant, lounge and other amenities are also in the works after the $73.1 million deal.
The Signia by Hilton San Jose, now a 541-room hotel, is eyeing significant upgrades in the wake of a deal whereby the Throckmorton real estate firm bought the hotel’s former southern tower as a crucial step to transform the high-rise into housing for SJSU students. SJSU will lease the southern tower from Throckmorton.
Mill Valley-based Throckmorton Partners, acting through an affiliate, paid $73.1 million to buy the southern tower of the Signia by Hilton San Jose, documents filed on Nov. 17 at the Santa Clara County Recorder’s Office show. Throckmorton bought the southern tower through an all-cash deal.
The hotel, which was formerly the Fairmont and is now owned by a group headed up by Bay Area business executive Sam Hirbod, has a greatly improved occupancy level after dropping in size from the previous 805 rooms to a smaller — yet still very large — hotel with 500-plus rooms at 170 South Market Street downtown.
“We believe the Signia is right-sized,” Hirbod said Monday. “It’s still the largest in the area and has the biggest meeting space. We plan to continue its tradition of being the most upscale business travel and group hotel in Silicon Valley.”
As part of the plans to keep the momentum going: new amenities in the Signia by Hilton San Jose.
“We plan to add other services such as a Business Club Lounge, an additional restaurant, and when the business environment supports it, a health spa,” Hirbod said. “The restaurant and lounge will be part of the immediate plan.”
The new lounge and restaurant are expected to come online sometime during 2024, most likely in the second half of next year.
The hotel already has restaurants, a lounge, a bar, a fitness center, a pool and a conference center.
“541 rooms would still be a major hotel,” said Alan Reay, president of Irvine-based Atlas Hospitality Group, which tracks the California lodging market. “I believe it would still be the largest hotel in Silicon Valley and a very important player” in the local hotel sector.
Hirbod’s group sold the 264-room southern tower of the hotel to Throckmorton Partners for about $73 million. The overall deal package is $113 million after including items such as the renovation of the just-sold tower to prepare it for 700 to 800 students who will live in the future SJSU housing starting in the fall of 2024.
The several hundred SJSU students are expected to create a more vibrant and lively economic scene throughout downtown San Jose, especially in the Signia Hilton’s vicinity.
The sale of a tower with that many hotel rooms is the equivalent of removing an entire hotel of decent size from downtown San Jose.
“The lower number of rooms in San Jose should result in higher occupancy for other hotels,” Reay said.
As an additional benefit, the prospect of fewer hotel rooms should result in higher per-night prices for the remaining hotels in downtown San Jose and nearby markets — if demand remains steady or increases.
In the wake of the outbreak of the coronavirus, hotel stays in the Bay Area and worldwide plummeted, along with occupancy levels and room rates.
By some measures such as occupancy rates, average daily room rates, and the industry benchmark, revenue per available room, the hotel markets in the Bay Area are showing some improvement.
Even so, hotels have battled to rebound to their pre-COVID levels, especially in business-oriented markets such as the Bay Area and Silicon Valley.
“As we have seen throughout the U.S., very large business and convention hotels have continued to struggle,” Reay said.
As a result, changes such as the removal of the 264 rooms from the local hotel market are helpful for the area’s lodging sector. And the Signia by Hilton San Jose is expected to be the primary beneficiary.
The improved picture and outlook for the Signia by Hilton, along with the prospect of significant new amenities, is a welcome counterpoint to the previous bankruptcy — now successfully concluded — of the hotel during the pandemic.
“The Signia will continue to be the best-in-class hotel for the city of San Jose and the South Bay,” Hirbod said.