Is struggling hotel a bellwether for downtown San Jose?

With the Signia by Hilton San Jose seemingly set to be put on the market, questions are swirling about the future of San Jose’s largest hotel — and what it will mean for downtown.

BrightSpire Capital, the owner of the 541-room hotel at 170 S. Market St., signaled to investors in a recent sales call that the hotel could be put up for sale within the coming months, The Mercury News reported. The news comes just under a year after the firm acquired the property in a foreclosure transaction that was seen as a troubling sign for the downtown real estate market.

Now, as a potential sale may be getting closer, many downtown watchers said the purchase could be an important hinge-point in the trajectory of the area’s post-COVID economic recovery.

“It’s still a beautiful property. It should be one of the crown jewels of downtown,” Kelly Snider, a land use consultant and urban planning professor at San Jose State University, told San José Spotlight. “How do you ensure that the new owner is going to sign on with the greater economic development goals of our downtown and not just strip all the profit out of it and leave downtown with another gaping hole?”

Representatives for BrightSpire Capital did not respond to a request for comment.

The hotel, which has stood as one of downtown’s most recognizable landmarks for decades, has faced a series of turbulent years since the waves of economic distress unleashed by the COVID-19 pandemic.

Over that time, San Jose’s office vacancy rates have remained stubbornly high. A recent report from commercial real estate firm Cushman & Wakefield pegged the vacancy figure for the first quarter of this year at 30.8% — nearly three times higher than the level seen before the pandemic.

The market challenges have led to speculation that a low-ball bidder could acquire the property and pair down expenses by limiting new investments or even shuttering the highly popular event spaces the hotel operates.

“That would still be a hotel, but it would be very disappointing to a lot of people,” Snider said.

But others see the potential for the exact opposite outcome — the next buyer could instead choose to invest big in restoring the property. Mark Ritchie, a commercial real estate broker, said this has been the pattern in other recent hotel real estate transactions.

“What’s happening across the board is that when we have the reset in value — and it’s sold to somebody who sees that opportunity — they come and invest heavily and get it back to full speed,” Ritchie told San José Spotlight.

Ritchie points to The Huntington Hotel in San Francisco. In 2023, three years after COVID woes forced the hotel to shut its doors, a group of businesses purchased the building and carried out major renovations, according to the San Francisco Standard.

Signia by Hilton began operating in 2022, after Hilton Worldwide Holdings bought the iconic 805-room Fairmont Hotel that fell into bankruptcy in 2020 due to the pandemic. The hotel’s closure was seen as a blow to the heart of downtown, the city’s economy and tourism. The new owners spent $35 million on interior renovations, according to The San Francisco Business Times.

Room bookings remained sluggish, and in 2024 the South Tower of the hotel was sold to San Jose State University and converted into housing for roughly 700 San Jose State University students. But the troubled hotel property continued to struggle, and fell into default that same year, according to the Mercury News.

Shifting travel patterns may force the hotel’s next owner to focus less on luxury accommodations and more on business travelers seeking affordable lodgings, Joseph Dworak, a San Jose attorney and expert on hotel real estate, said.

“The question is can you get occupancy levels up at lower room rates?” Dworak told San José Spotlight. “I think they probably can. There’s probably enough traffic from Zoom and from Adobe just to do their smaller conventions.”

Zoom and Abode’s headquarters are just blocks from the downtown hotel.

BrightSpire officials have reportedly said they are planning to conduct renovation work ahead of any potential sale.  District 3 Councilmember Anthony Tordillos, who represents downtown, also pushed back on bearish speculation about the property’s future.

“The plan from the outset has been for (BrightSpire Capital) to address deferred maintenance issues, stabilize the property and ultimately get it back on the market so that an operator can take over,” Tordillos told San José Spotlight. “In the process, they’re investing in activating and upscaling retail on the Paseo and filling vacancies, all of which will contribute to a more vibrant downtown.”

Contact Keith Menconi at [email protected] or @KeithMenconi on X.