SAN JOSE — The Fairmont San Jose hotel bankruptcy case has arrived at some crucial stages while uncertainties swirl around a precise date to reopen the iconic downtown lodging and the viability of a plan to revamp its finances.
On March 5, the Fairmont San Jose closed its doors and filed for bankruptcy to reorganize its finances, with the hotel’s owner saying at the time that the hotel would reopen in two to three months.
The original time frame of 60 to 90 days pointed to a reopening by as soon as early May or as late as early to mid-June, based on the assertions of the hotel’s owners at the time of the Chap. 11 bankruptcy filing.
Now, however, court papers have emerged that hint at a later time to reopen the doors of the double-tower hotel in downtown San Jose.
The indication of a later time frame — which now points to mid-to-late summer — arose with the filing by the Fairmont’s owners of an amended disclosure statement regarding its business operations, assets, and liabilities. The new disclosures were filed with the U.S. Bankruptcy Court on May 11.
The approval of the reorganization plan is seen as a necessary prerequisite to the hotel resuming operations. That’s because the plan must be in effect so it can provide the foundation needed to put the hotel back on a stable financial footing.
“If the plan is confirmed, the debtors anticipate that the effective date will occur in July or August,” the hotel owners said in the court filing.
Plenty of crucial hurdles will have to be cleared by the hotel owners to successfully reorganize the hotel’s finances.
Among the important challenges that face the bankrupt hotel owner:
— The owners must successfully find a new and high-profile hotel manager that will operate the downtown San Jose hotel under a new brand.
— The new hotel operator must agree to provide at least $45 million in a cash infusion to help steady the hotel’s finances.
— The hotel owners must get court approval to terminate the existing hotel management and operating contract with Accor Management U.S., which formerly was Fairmont Hotel & Resorts.
It also has become clear that the bankrupt hotel owner, Eagle Canyon; and the hotel operator, Accor Management, became adversaries over a one-year period starting in March 2020, which is around the time that the coronavirus jolted the finances of the Fairmont and hotels worldwide.
Accor Management accused hotel owner Eagle Canyon Capital of not providing enough financial support to the hotel operators until revenue and occupancy levels could return to the pre-COVID levels.
“This stance led to a number of disputes,” Paul Tormey, an Accor regional vice president, declared in a statement to the bankruptcy court.
The owner of the Fairmont claims that Accor Management did not sufficiently help the hotel owner to address the crumbling finances of the Fairmont San Jose.
“The business relationship between Accor Management and the hotel ownership is beyond repair,” the hotel owners stated in the court papers.
A committee of unsecured creditors has raised questions about how realistic and how feasible is the disclosure statement filed by the hotel owners. The disclosure statement is supposed to detail the hotel’s liabilities, assets, and business operations. Creditors require a detailed disclosure statement so they can make an informed decision about whether to support the reorganization plan.
One of the crucial parts of the entire plan to restabilize the hotel’s finances is the marketing effort to identify a new hotel management firm that would also be willing to provide the hotel with a big chunk of financing to bolster the hotel’s operations.
“The reorganization plan assumes that the marketing process will result in the debtors obtaining new financing of at least $45 million, also known as the ‘mezzanine loan,’ from a leading national hotel brand,” the creditors’ committee stated in a court filing. “This process, however, is not complete.”
The owners of the hotel, however, countered that the lodging’s best chance is to proceed with the current plan and find a new management team.
“Hotel brands that have expressed interest in the hotel thus far generally offer improved marketing prospects for the hotel, broader guest and booking pipelines, and better positioning to capture a larger share of the convention business as COVID-19-related restrictions continue to ease,” the hotel owners stated in a court filing.
And the hotel owners envision a steady return to financial health if the plan is approved by the court and a manager — and the $45 million cash infusion — emerges.
“The occupancy rate is expected to grow through 2021 and 2022 and reach pre-pandemic levels by the end of 2022,” the hotel owners stated in a court filing on May 11.
Originally Appeared On: https://www.mercurynews.com/2021/05/14/hotel-bankrupt-fairmont-san-jose-revamp-reopen-real-estate-covid/