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City of San Jose Not Sure What to Do with the Historic and Financially Struggling
 Dolce Hayes Mansion Hotel and Conference Center; Annual Subsidy
 Expeced to Reach $4.2 million

By John Woolfolk, San Jose Mercury News, Calif.
Knight Ridder/Tribune Business News

June 19, 2006 - San Jose officials Tuesday are expected to increase the subsidy for the city's historic and financially struggling Hayes Mansion hotel conference center by $450,000 to $2.4 million -- and that's only for the current budget year that ends this month.

The subsidy is expected to nearly double in the next budget year to $4.2 million.

City officials say Dolce International, which has run the conference center since 2004, has made impressive strides boosting revenue by booking more conferences and events. But the center remains buried under a mountain of debt the city approved for the previous operator.

At least one city councilman, mayoral front-runner Chuck Reed, says it's time for the city to consider unloading the money-losing manor.

"I think we should sell it," said Reed, who represents northern San Jose, adding that "$4.2 million a year is too much money for a subsidy."

But Councilman Forrest Williams, whose district includes the Hayes Mansion, which is on Edenvale Avenue off Monterey Highway, will hear none of it.

"I'd never vote to sell that place," Williams said. "That's a shortsighted view."

Historic landmark

The mansion is named after Mary Folsom Hayes, whose family made its fortune mining iron in the Great Lakes area and settled in San Jose in 1887. The Spanish Colonial Revival-style manor was completed in 1905, the year she died at the age of 80.

The Hayes heirs, who ran newspapers that eventually became the San Jose Mercury News, sold the paper and most of the estate in the mid-1950s. The property changed hands several times over the next two decades. The mansion was listed on the National Register of Historic Places in 1975 and declared a city landmark in 1981.

San Jose bought the mansion from its redevelopment agency in 1985 for $2.5 million and opened it to the public in 1994 as the Hayes Mansion Conference Center, operated by Hayes Renaissance, a limited partnership. A $62 million renovation begun in the 1990s added more than 80,000 square feet. But when Silicon Valley's economy slumped in 2001, the center began losing money.

In January 2004, the city handed operations over to Dolce International in hopes that the global conference center company could make the Hayes Mansion profitable. City Finance Director Scott P. Johnson said the results have been impressive.

Gross operating profit, which measures how effectively Dolce is managing the property by excluding debt costs and other fixed city expenses, has risen 244 percent to $650,000 this year, Johnson said. Last year saw a gross operating loss of $450,000, and the loss was $1.5 million the year before, he said.

Net losses also are shrinking, from $3.8 million in 2003-2004 to $2.9 million last year and $2.7 million in the current fiscal year, Johnson said.

"Things are improving," Johnson said.

Dolce Hayes Mansion officials did not return phone calls about the subsidy Friday. But Johnson acknowledged there is no projected self-sufficiency date for the mansion.

Expansion decisions made during boom times continue to be a drag on the operation. This year's debt payments cost $3.2 million.

Next year's subsidy is expected to hit $4.2 million because the expansion was mostly financed with variable-rate debt and interest rates are rising. Also, the city's $5 million line of credit on the mansion has been depleted.

Time to sell?

Reed says enough is enough.

"I think they're probably doing the best they can in this market because they are quality operators, but it's still a $4.2 million-a-year subsidy," Reed said. "Maybe we can sell it and break even and get out of the deficit business. It's a beautiful old building, but if we sell it, it will still be a nice, beautiful old building."

City officials haven't researched any sale of the property because the council has not decided to take that step, Johnson said.

Williams says it's too early to give up.

"You sell it and then what? Who's going to manage it?" Williams asked. "I believe we can make this thing profitable. It may not be overnight, but the existing management team has done a great job out there."

Contact John Woolfolk at jwoolfolk@mercurynews.com or (408) 975-9346.

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Copyright (c) 2006, San Jose Mercury News, Calif.

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