SAN JOSE — A hotel complex in San Jose is in default on a $21.7 million loan that Choice Hotels International has provided, according to documents filed on June 6 with the Santa Clara County Recorder’s Office.

At 2560 Fontaine Rd. near the interchange of U.S. Highway 101 and Tully Road, the 204-room hotel site facing the loan delinquency includes a Motel 6 and a Super 8 by Wyndham.

An affiliate headed up by Texas-based lodging executive Jagmohan Dhillon obtained the loan in August 2024, county real estate files show.

The property is one of several lodging sites in the Bay Area that affiliates controlled by private equity firm Blackstone Group sold in recent years to an array of buyers.

“Blackstone being Blackstone, they sold at the right time in retrospect,” said Alan Reay, president of Irvine-based Atlas Hospitality Group, which tracks the California lodging market.

Dhillon-led entities bought some of these from Blackstone-controlled affiliates in recent years.

“There was a lot of demand for those Motel 6 hotels,” Reay said. “The prices really got bid up.”

Two of the hotel properties owned by Dhillon-led affiliates, one in Livermore and now in San Jose, have flopped into loan defaults.

The Dhillon affiliate that owns the Livermore hotel filed for bankruptcy just ahead of a foreclosure proceeding that the property’s lender seeks to orchestrate.

In 2022, a Dhillon affiliate paid $29.9 million to the Blackstone subsidiary for the 204-room south San Jose hotel properties, county property files show. The site’s property taxes that were due in 2024 have become delinquent, according to real estate records current as of June 1.

A combination of factors may have combined to put the combo Motel 6 and Super 8 lodging property into financial distress, Reay said.

“It’s partly a reflection of the slowdown in the hotel market,” Reay said. “But it’s also the price they paid and the high level of debt on the hotel at high interest rates.”

REAL ESTATE MALAISE

This loan default for the south San Jose hotel is just one of a widening array of financial woes that loom over the Bay Area lodging industry.

Oakland’s largest hotel, the 500-room Oakland Marriott City Center at 1001 Broadway in the downtown district, went into default in February due to a delinquent $100 million loan. A foreclosure auction is on the horizon.

Across the street in downtown Oakland, the Courtyard Oakland Downtown was bought by Core Capital for $10.6 million, one-fourth of the $43.8 million that the seller, a Gaw Capital Partners affiliate, paid in 2016, according to documents filed in October 2024 with the Alameda County Recorder’s Office.

A dual-brand 18-story hotel tower at 1431 Jefferson St. in downtown Oakland was taken back by its lender through a deed in lieu of foreclosure filing that stated the unpaid debt on that hotel was $117 million.

In downtown San Jose, the South Bay city’s largest hotel, the Signia by Hilton, was seized by its lender through a foreclosure that valued the downtown hotel at $81 million — far less than a recent appraisal.

Park Hotels & Resorts has ceased making payments on a $725 million loan that had two major San Francisco hotels as collateral: the 1,921-room Hilton San Francisco Union Square and the 1,024-room Parc 55 San Francisco.

In 2023, the historic 135-room Huntington Hotel, perched on San Francisco’s Nob Hill, was bought through a foreclosure. The new owner paid about $29.3 million — a price that was roughly one-third the hotel’s assessed value of $87.6 million at the time of the foreclosure proceeding.