The San Jose Planning commission has approved plans for an extended-stay Marriott hotel in San Jose's Downtown West. Opportunity Zone Fund Urban Catalyst is the developer behind the project, while BDE Architecture and Studio Current will serve as the architects.
The property will be branded extended-stay Marriott TownePlace Suites and target business travelers. The eight-story, 185,000-square-foot property will have 175 rooms with in-room kitchens and onsite parking. Guests typically stay an average of 15 nights. It is near Google's Downtown West mega-campus. The hotel will be completed in 2023.
Urban Catalyst's Fund I is active in the San Jose market. Including the hotel, it currently has six ground-up projects under construction. The Fund I closed December 30 with $131 million in investments, and the firm is now accepting investments for its Fund II. Like the first fund, the second fund will be used to build office and multifamily projects in the heart of Downtown San Jose.
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While the hotel market—and specifically business travel—abruptly paused during the pandemic, capital has been fueling activity in San Jose. Recent research Trepp shows that the San Jose metro area tops the list of secondary markets for CRE investment. The region, which includes Sunnyvale and Santa Clara, Calif., ranked first in Trepp's recent roundup of real estate investment thus far in 2021, outpacing the Las Vegas-Henderson-Paradise and Sacramento-Roseville-Arden, Calif., regions.
San Jose reclaimed its top spot from 2018, and was the MSA with the highest level of new CMBS issuance, with more than $3.3 billion invested across 41 loans since March 2020. About 80% of that total came from 32 loans issued in the office sector in 2020.
Even the market's retail market has held up. A market report from earlier this year by Marcus & Millichap predicted that retail rents in San Jose will grow 2.8% this year, after falling .8% in 2020. If the prediction holds, rents will climb to $36.01 per square foot. The rebound in retail rents is surprising as the report also predicts a 60 basis point increase in the vacancy rate, climbing to 5.1%. It would be the highest vacancy rate in the market since 2013. It would also outpace 2020 vacancy rate growth, which climbed 50 basis points to 4.5%.
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Kelsi Maree Borland
