SAN JOSE >> An iconic San Jose hotel is worth well over $200 million and has a brighter outlook, according to court papers that sketch out a legal battle that may determine the property’s fate and ownership.

The court case involves the future of the Signia by Hilton San Jose, a 541-room downtown hotel whose ownership group has filed for bankruptcy as part of a gambit to steady the hotel’s finances and fend off a quest by its lender to shove the property into a loan foreclosure.

An appraisal that’s part of the public record in a U.S. Bankruptcy Court case involving the owner shows the hotel is worth considerably more — on a per-room basis — than it was in 2018 when the ownership group, headed up by Bay Area business executive Sam Hirbod, bought it.

Hirbod’s group paid $223.5 million for what in 2018 was an 805-room hotel with two towers, which works out to about $278,000 a room.

The hotel — now 541 rooms and one tower after a deal to sell and convert the south tower to student housing — is currently worth $217.4 million, or $402,000 a room, according to an appraisal by HVS Consulting & Valuation, which specializes in consulting and appraisals for the hospitality industry.

Once the hotel is on firmer financial footing, its value is expected to rise to $266.5 million, or $493,000 per room, by sometime in 2027, HVS Consulting stated in a cover letter for the appraisal that was filed with a U.S. Bankruptcy Court.

“The property, which opened in 1987, features 541 rooms, three restaurants, a pool bar, a grab-n-go, 36,071 square feet of meeting space, a rooftop pool and sundeck, a fitness center, a full-service spa, a number of retail outlets and electric vehicle chargers,” HVS Consulting stated.

As the hotel’s value is rising, the property’s principal lender — an affiliate of New York City-based BrightSpire Capital — is attempting to seize it through a foreclosure of a small portion of the hotel’s overall real estate financing.

BrightSpire had provided the hotel with a financing package that as of July totaled about $165.3 million. The default, however, involves only a portion of the overall financing package. A junior loan totaling roughly $15 million is delinquent, documents show. The small loan is the focus of the foreclosure quest.

The Hirbod ownership group and an affiliated group, collectively known as the SJ Entities in the bankruptcy case, have spent $75 million to renovate the hotel, court papers show.

Starting in 2021, the ownership group has renovated the lobby, greeting areas, reservation desk, lounge, bar, guest rooms, public areas, fitness center and the rooftop swimming pool.

“The SJ Entities were determined to see the project through, with the belief that the completed renovations would position the hotel to capture future demand once the travel industry rebounded,” Hirbod said in a sworn statement filed with the court.

The lender, however, is attempting to seize ownership of the hotel just when a turnaround has come into view, according to the Hirbod declaration.

Hirbod stated that his group made an offer to a BrightSpire affiliate that provided the loan for a 60-day extension so the ownership group could complete a deal for new financing to replace the BrightSpire loan.

The BrightSpire group refused, which forced Hirbod’s hand and triggered the bankruptcy filing, which is the second time in three years the hotel ownership entities have filed for bankruptcy.

Hirbod maintains the lender hopes to seize the hotel now that renovations are complete, the asset is repositioned with fewer rooms and a higher occupancy level and the lodging market is in turnaround mode.

“I strongly believe that CLNC (the lender’s affiliate) aims to take ownership of the asset and benefit from the dollars the SJ Entities invested now that the most challenging times are behind us,” Hirbod said.

Multiple court documents, including the appraisal and the Hirbod filing, show that the hotel’s prospects have improved considerably — a sharp contrast to prior financial woes that included a separate bankruptcy filing in 2021 and the shutdown of the hotel for about a year.

This time around, the doors are remaining open and the hotel continues to operate.

Hirbod’s group began to engineer a dramatic upswing in the hotel’s financial standing through a deal with a real estate company to sell the south tower of the hotel.

In November 2023, Throckmorton Partners, a Bay Area real estate company, bought the 264-room southern tower of the Signia by Hilton hotel from a group headed up by Hirbod as part of a $113 million purchase, financing and renovation package.

That overall amount includes the $73.1 million that Throckmorton Partners paid for the property. The deal dramatically diminished the number of hotel rooms in downtown San Jose, a reduction in supply that helped to intensify demand for lodging, including at the Signia by Hilton.

As a result, Hirbod believes the hotel’s prospects are much brighter than they have been in recent years.

“Since completing our renovation in March, our occupancy had reached 71% for September, with projections indicating the same for October,” Hirbod stated in court papers. “Our future contracts were outperforming our competitors, and the hotel was on a clear path to stabilization.”