East Coast real estate firm buys San Jose hotel for nearly $16 million

SAN JOSE — A San Jose hotel that’s part of a four-hotel purchase package has been bought in a deal whose final price wound up at just under $16 million, documents filed with Santa Clara County officials show.

The hotel, located at 5190 Cherry Ave. in San Jose next to the Bass Pro Shops-anchored Almaden Ranch retail and restaurant complex, was bought by an affiliate of Magna Hospitality, according to public records.

Magna Hospitality’s affiliate paid nearly $15.8 million for the hotel building, a transfer tax statement that was filed on Oct. 6 with the county shows.

Rhode Island-based Magna Hospitality also obtained a ground lease for the land beneath the hotel, according to the county public filing.

The new owner intends to convert the hotel into a Hampton Inn, according to a license application filed with the state Alcoholic Beverage Control agency.

The purchase makes sense, said Alan Reay, president of Irvine-based Atlas Hospitality Group, which tracks the California lodging market.

“Magna Hospitality is a good company and a good operator,” Reay said. “This is a good play by Magna especially when you are talking about newer products like this.”

The hotel was developed in 2019 and has 115 rooms. At present, the hotel is part of the Wyndham Hotels & Resorts brand.

“You are going from the Wyndham reservation system to the Hilton network,” Reay said. “You are targeting higher-end business travelers. This will result in higher revenue and bigger profits.”

Magna Hospitality, to help bankroll its purchase of the four hotels that included the San Jose lodging complex, obtained $77.5 million in financing from Western Alliance Bank, the county documents show.

In addition to the purchase financing, some of the loan funds might also be used for physical upgrades or other endeavors to help convert the San Jose hotel to a Hampton Inn.

Seeking to upgrade a just-bought hotel dovetails with Magna Hospitality’s philosophy, a post on the real estate firm’s website suggests.

“Magna continues to focus on value-add hotel investment opportunities exclusively within the lodging sector,” the web post states.

Buying a hotel at what works out to roughly $137,000 a room also appears to be an excellent strategy, even in the aftermath of the coronavirus outbreak.

The economic impacts unleashed by the coronavirus devastated the worldwide travel and lodging sector and were particularly brutal in the Bay Area, which greatly depends on business travel and convention visitors.

“If you wanted to replace the hotels that Magna Hospitality just bought with a new hotel, the construction costs would probably be $250,000 to $300,000 a room,” Reay said. “Plus, you have to find a location and get the project approved.”