San Jose hotel that might become housing complex is bought at weak price
SAN JOSE — A San Jose hotel that is being eyed as a site for a possible conversion to housing has been bought at a price that suggests lodging property values remain feeble in the Bay Area.
The Sonesta ES Suites hotel in north San Jose has been bought for $16 million by an affiliate headed up by San Diego-based Kalthia Group Hotels, according to documents filed on Dec. 17 with the Santa Clara County Recorder’s Office.
Earlier this year, Kalthia Group Hotels executives floated a preliminary proposal to convert the 114-room suites hotel into residences.
“This makes sense as a housing conversion,” said Alan Reay, president of Atlas Hospitality Group, which tracks the California lodging market. “Suites already have kitchens, so that makes a conversion easier.”
In 2018, Hospitality Properties Trust, through an affiliate, paid $21.3 million for the hotel, county property files show.
This means the most recent price is about 25% below what Hospitality Properties Trust paid for the hotel, which is located at 1602 Crane Ct.
The latest purchase deal involving the Sonesta ES Suites places a value on the hotel of roughly $140,350 a room.
“This is a good acquisition for the buyer,” Reay said. It’s a great price.”
Developing an identical hotel would cost roughly $250,000 to $300,000 a room, Reay estimated. This means Kalthia Group bought the San Jose hotel for well below its replacement price.
The new owner also might be able to capitalize on its ownership of the Sonesta ES Suites in the short run.
The hotel could benefit from the trifecta of world-famous sporting events that are headed to the South Bay in 2026: the Super Bowl, a bracket for the men’s college basketball tournament, and several matches of the FIFA World Cup.
The year of mega events in sports thereby provides the prospect of a financial cushion if the new owner decides to pursue a housing conversion of the suites hotel.
The purchase occurred at a time when the Bay Area hotel market is showing some signs of perking up
“The numbers for the San Jose and San Francisco markets appear to be turning around,” Reay said.
If so, this would represent a welcome contrast for the Bay Area hotel market after recent years of foreclosures, loan defaults, and feeble room rates.
“People were wondering where’s the bottom,” Reay said. “Now we are coming off the bottom.”