San Jose leaders have reluctantly agreed to a plan to convert hundreds of hotel rooms into student housing amid concerns it will harm tourism.
The San Jose City Council unanimously approved a deal yesterday between San Jose State University and the owner of the former Fairmont Hotel, rebranded as Signia by Hilton last year, to sell off the south tower—about a third of the hotel’s 705 guest rooms for student housing. City officials say the deal is a double-edged sword: with hotel occupancy rates down, the move can potentially save the hotel from bankruptcy and bring students to support surrounding businesses. But fewer rooms may limit the city’s hotel tax revenue from hosting conventions.
Charlie Faas, vice president of administration and finance at San Jose State, said the only two events capable of filling up the “struggling hotel” are the World Cup and Super Bowl, both scheduled to come to San Jose in the coming years.
“Filling it up with 800 students on a daily basis and summer internships makes (for a) vibrant downtown so all these open storefronts we have get filled,” Faas said.
San Jose State was recently labeled the eighth most affordable college out of 25 in major U.S. cities. But advocates have pushed back, as 11.2% of SJSU’s students have experienced homelessness as of 2021 due to the high cost of living in the area. Last year the university missed out on millions in state funding for affordable student housing.
Vice Mayor Rosemary Kamei centered her concerns on the loss of hotel tax dollars for the city, though Mayor Matt Mahan said the rooms in the south tower are usually empty and don’t generate much revenue anyways. San Jose faces a projected budget deficit next year, and Kamei said the city should prepare for continued loss with changes to the hotel.
“Once you close that off, we’re not going to see the (hotel tax) come back,” Kamei said. “I could be convinced otherwise, but I’m not convinced that this is in the best interest of the city of San Jose.”
During last week’s San Jose Downtown Association annual meeting on the state of downtown, Mahan focused on hope and excitement and said the city’s core is not far from a resurgence. Mahan struck a more cautious tone during Tuesday’s council meeting.
“I hope that in a couple of years we’ll be looking at the expansion and investment in new hotels because we’ll have so much demand when downtown bounces back,” Mahan said. “Unfortunately as we all recognize that’s not the moment we are in and hasn’t been for a few years now.”
John LaFortune, president and CEO of Team San Jose, a destination marketing organization aimed at bringing visitors to the city, previously told San José Spotlight the three-year average occupancy rate in downtown hotels is at about 56%—nearly 20% less than pre-pandemic levels. Those numbers aren’t projected to rebound until at least 2025.
LaFortune said losing rooms will slow that recovery and hurt the overall visitor economy, especially for booking events at the nearby San Jose McEnery Convention Center.
Councilmember David Cohen said the city is giving up significant business opportunities from conventions every time it loses a hotel room.
“I get a little nervous when we make big decisions about reuse of property in the short term when we hope things long term will be different,” Cohen said. “I’d hate to see us take a step forward and then two steps back.”
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Editor’s Note: A previous version of this story incorrectly identified the percentage of SJSU students who have experienced homelessness as being homeless.