Big San Jose housing complex with hundreds of units flops into default
SAN JOSE — A big San Jose housing complex with hundreds of units is in default on a loan that tops a quarter-billion dollars, a setback that could lead to a foreclosure of the property’s delinquent financing.
The $264 million construction loan for the double-tower housing highrise at 188 West St. James Street, formerly known as Silvery Towers, is in default, documents filed on Oct. 10 with the Santa Clara County Recorder’s Office show.
FPP MB, which is affiliated with China-based real estate firm Z&L Properties, owns the two residential towers, which are in the lively San Pedro Square neighborhood.
Flawed construction, development delays, lawsuits, failed payments to subcontractors and even a suicide have haunted the double-tower project in recent years.
“This default almost seems inevitable, considering all the problems the project has had,” said Bob Staedler, principal executive with Silicon Valley Synergy, a land-use consultancy.
The complex totals slightly over 600 units with about 300 units in each of the 22-story towers.
The loan default suggests the housing complex could become the latest in a growing string of development failures for the once-impressive real estate empire that Z&L Properties had fashioned in San Jose.
“Z&L has botched every project in which they have become involved,” Staedler said.
Among the struggling Z&L projects in San Jose:
— 188 West St. James Street. The complex is engulfed in legal battles along with the loan delinquency. For slightly over a year, FPP MB had been selling the condos in the western tower, but the transactions halted in July 2023 after the developer had sold about 100 units. In recent months, FPP offered the remaining 200 condos for rent, a gambit that appears to be bearing fruit.
— 43 East St. James Street. Z&L had agreed to protect and renovate an old church at this site next to St. James Park in downtown San Jose, but instead has neglected the historic building and allowed it to fall into disrepair. Z&L has also failed to develop housing towers on the site, which has become blighted.
— 60 and 70 South Almaden Avenue. Z&L had proposed a 708-unit housing complex on the site of a former Greyhound bus terminal in downtown San Jose. The project has yet to break ground. In a potential prelude to a foreclosure proceeding, a successful New York City real estate firm has bought the loan for the property.
— West St James Street and Terraine Street for years was the downtown San Jose site where Z&L had proposed a big housing development. Z&L never broke ground on this property and eventually sold it to a real estate alliance of global developer Westbank and Bay Area developers Gary Dillabough, Tony Arreola and Mark Lazzarini.
— In 2017, a Z&L affiliate paid $25 million for the vast 3,654-acre Richmond Ranch in southeast San Jose. In January 2024, the Z&L affiliate sold the ranchland for $16 million through an intricate plan to eventually enable the Santa Clara Valley Habitat Agency and the Santa Clara County Parks and Recreation Department to buy the property. Z&L never disclosed its game plan for owning the property.
Now, 188 West St. James, the only project that a Z&L affiliate has been able to actually develop in San Jose, is struggling financially and could wind up on the auction block or be foreclosed by its lender.
CMTG California 2, the lender for the double-tower housing complex in downtown San Jose, stated that the “unpaid principal debt” on the property totals just under $169 million, according to the county real estate records.
Counting the past-due fees, unpaid interest and other penalties, the total amount owed as of Oct. 9 was $205.5 million, the county documents show.
Intriguingly, FPP MB stopped making payments in October 2022, the county records show.
Lenders often don’t immediately pursue default and foreclosure proceedings on delinquent debt in hopes some financial remedies might materialize.
The successful efforts to rent the condos in the west tower raise hopes that at least one of the two highrises could bring more people into downtown San Jose.
“188 West St. James is a blighted property as things stand now,” Staedler said. “More tenants could mean more activation and vibrancy, which the downtown needs.”