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SAN JOSE – A residential high-rise complex in downtown San Jose has encountered a mortgage default, though the project developer has addressed loan issues and believes they have put the development on an improved financial footing.
The project, planned for the site of a former Greyhound station at 70 S. Almaden Ave. in downtown San Jose, is designed to become two high-rise buildings with a total of 708 residential units.
The developer of the Greyhound property is Full Standard Properties, a subsidiary of Chinese company Z&L Properties, a developer with Bay Area offices in Foster City that has launched other major residential projects in downtown San Jose, although none are finished.
“There was a buyer / seller dispute in connection with the original purchase agreement for 70 S. Almaden Ave. which was quickly resolved,” said Lawrence Fassler, general counsel for Z&L Properties, saying reference to the Greyhound site.
Although Greyhound’s development has reached a certain level of financial stability, a default raises questions as to when the project could begin construction and be completed.
The other downtown San Jose projects launched by Z&L Properties are all residential: the former 640-unit Silvery Towers development which is now known as 188 West St. James near the corner of St. James Streets. and North San Pedro, 220- unit 252 of the North First complex, also known as Park View Towers, whose centerpiece is a former church; and the development of 305 North San Pedro units at the northwest corner of Old Julian Street and Terraine Street.
“The issues with Project Greyhound make you wonder about Z&L’s ability to operate at all sites,” said Bob Staedler, managing director of Silicon Valley Synergy, a land use and planning consultancy.
The Z&L Properties subsidiary bought the Greyhound site in April 2016, paying $ 39 million, according to public documents from Santa Clara County. Public records also show that real estate seller Greyhound, a subsidiary of Cupertino-based developer KT Urban, provided Z&L with $ 8.8 million in funding at the time of the sale.
Problems arose in October 2018, when the KT Urban affiliate that funded the Greyhound transaction filed a notice of default on the loan, according to county property records.
The default deposit amounted to a public disclosure that the lender believed the mortgage payments were past due.
The past due payments totaled at least $ 6.2 million from the original home loan of $ 8.8 million, according to public documents.
That $ 6.2 million included $ 3.8 million of the original equity balance, approximately $ 1.7 million claimed under an agreement that was part of the deal between Z&L and KT Urban, and claims for related interest charges.
“The $ 3.8 million of the remaining principal balance was promptly repaid and the parties negotiated an appropriate settlement amount for the contingency amount claimed,” said Fassler, of Z&L. Finally, the KT subsidiary Urban canceled the default procedure.
In February 2019, the Z&L subsidiary obtained a $ 19.5 million loan from the Shanghai Commercial Bank, according to county records.
This new Shanghai Commercial mortgage, however, appears to be far less than what would be required to build two residential towers at the Greyhound site. Projects of this size can often require construction funding in excess of $ 100 million.
Shanghai’s $ 19.5 million in commercial financing is a so-called “bridge loan” that provides a financial reserve until construction financing can be secured for the Greyhound project.
Other difficulties arose for the projects initiated by Z & L Properties.
The North San Pedro project defaulted on a development agreement with the city of San Jose. The city has scheduled a meeting on April 16 to determine the next course of action, which could possibly include repossessing the site. This property once belonged to the now defunct city redevelopment agency.
Z&L Properties’ first ongoing project in downtown San Jose, 188 West St. James, has suffered numerous delays and is still not completed, although construction continues.
At the Park View Towers project, Z&L did not pay a contractor who was working on renovations to the old church that would be part of future residential towers on the site, according to the builder, San Jose-based Garden City Construction. . This lack of payment temporarily halted work, Garden City said.
Payments eventually resumed, as did work to protect the old church from the rains and winds of winter.
“There seems to be a chaotic situation with this developer,” Staedler said.