San Jose hotel development site is seized in real estate foreclosure

SAN JOSE — Lenders have seized through a real estate foreclosure a San Jose site where a hotel was proposed but never built, an unsettling sign that coronavirus-spawned economic ailments still afflict the Bay Area lodging sector.

The real estate group that lost ownership of the site in the foreclosure proceeding had proposed the development of a 132-room hotel but never managed to launch the construction.

LBC Capital Income Fund and family members who head the Fogel Family Trust took ownership of the property by foreclosing on a $4.6 million loan the lenders had provided to the development group in 2021, documents filed on Sept. 22 with the Santa Clara County Recorder’s Office show.

North Star Hotel Development had proposed the hotel project on land it bought in 2019, paying $6.5 million at that time, according to county real estate records.

The unpaid debt on the site had risen to about $5 million at the time the foreclosure proceeding was completed, according to the trustee’s deed filed to mark the completion of the foreclosure.

In the wake of the foreclosure, it’s unclear what might be the future of the one-time development site.

At present, a commercial building occupies the 0.9-acre property at the corner of South De Anza and Sharon Drive.

This foreclosure represents one of the most recent known examples that underscore the brutal financial difficulties that confront sites where hotels have been proposed but have yet to be developed.

In May 2023, South Korea-based Pine Tree Investment & Management seized ownership of an undeveloped 3.2-acre site at 7 Topgolf Drive in San Jose’s Alviso district where a 200-room hotel had been proposed. Pine Tree was the lender for the land site. The hotel was never built.

In July 2023, A San Leandro-based affiliate headed up by a gasoline station executive paid $4 million for a property at 2850 Stevens Creek Boulevard. An 11-story 175-room hotel was proposed for that property. The long-time uses for the site have included vehicle services including a gasoline station.

All three of the San Jose hotel development sites were proposed prior to the coronavirus outbreak and the onset of government-ordered business shutdowns in March 2020 that devasted the lodging industry in the Bay Area and worldwide.

Even after the termination of the business lockdowns, the hotel sector continues to struggle in the Bay Area. With existing hotels struggling, the development of new business-oriented hotels would appear to be a challenging endeavor.

The financial woes affecting the Bay Area hotel market go well beyond San Jose.

In March, the historic Huntington Hotel, perched on San Francisco’s iconic Nob Hill, was seized through a foreclosure in which the new owners bought the hotel for $29.3 million — a fraction of the hotel’s assessed value of $87.6 million.