GE to Foreclose on North San Jose Hotel
Submitted March 30, 2010, 10:50 PM
Commercial property lender GE Capital Corp. is expected to foreclose on San Jose’s North First Street Holiday Inn within days, following an extended fight by the global company to gain control of the site.
The 512-room hotel and 16.6 acres, pulled into bankruptcy just more than a year ago, was valued at nearly $100 million by housing developers in 2005 and 2006, lured by dreams of high-density, high-rise redevelopment. According to an expert appraiser cited in court records, the property is now worth $15 million, valued as a going concern.
But in early 2009, the hotel’s owner, San Jose Airport Hotel, filed for Chapter 11 bankruptcy court protection, halting the foreclosure process. U.S. Bankruptcy Court Judge Roger Efremsky has now agreed to set aside that automatic stay on the foreclosure and has granted GE the right to go forward. GE has scheduled at least three trustee sales for the property. The latest is set for April 9, said Dan Carter, publisher of The Blue Sheet, which tracks foreclosure filings in Santa Clara County.
Merle C. Meyers of San Francisco’s Meyers Law Group, which represents the hotel in the bankruptcy proceedings, said that the delays do not indicate a last-ditch effort by his client to retain the property.
Well-known South Bay hotelier Manou Mobedshahi, whose company owned the Holiday Inn, could not be reached for comment. At one time, Mobedshahi owned downtown San Jose’s historic Sainte Claire Hotel at South Market and East San Carlos streets and the so-called Original Joe’s building next door.
The North First Street property, which is a frequent site for social and business networking events for Silicon Valley residents and companies, appears to have operated in the red for much of the last year. In court filings, GE persuaded the judge to allow it to proceed with the foreclosure in part because its security had lost millions of dollars in value during the 12-month bankruptcy process. In February alone, the property’s expenses exceeded its revenues by nearly $1 million, court records show. Thomas E. Callahan, a co-president and chief executive officer of PKF Consulting in San Francisco who appraised the property twice in 2009, put the property’s estimated fair market value on Sept. 1 at $15 million, down $3.7 million from March 1.
Despite that sorry showing, the site still holds dazzling promise. The tract is exceptionally large by Silicon Valley standards. It is also near downtown and the San Jose airport, is visible from Highway 101 and sits on the famed North First Street corridor. It also is designated by the city’s general plan for some of the tallest buildings in San Jose at more than 300 feet. The city has looked at high-rise housing, hotels and offices for the property, said Joseph Horwedel, director of San Jose Planning, Building and Code Enforcement in a short email message.
Paul Henning, a senior asset manager for GE Capital Real Estate, told the court that in 2005, Trammel Crow executed a purchase option for $91.5 million for the property, but after spending close to $2 million on due diligence, the company did not proceed, spooked by worries from the slowing housing market. Then, in 2006, DR Horton and Western Pacific Housing signed a letter of intent to buy the property for $91 million to $98 million depending on the length of its due diligence. They, too, backed out because of worries about the residential market, Henning said in court records.
According to attorney Meyers, GE is negotiating with the Holiday Inn franchisor to try to retain the Holiday Inn designation. The franchisor is one of the biggest creditors in the bankruptcy, claiming nearly $500,000 in unpaid charges.
A GE spokesman did not respond to email or telephone messages seeking information about GE’s plans for the site.
