San Jose housing tower lurches into default as property market wobbles

SAN JOSE A San Jose housing tower with well over units has lurched into a loan default in a fresh and ominous sign of weakness for the multifamily residential domain Related Articles Developer pulls out of Berkeley s California Theatre redevelopment Sunnyvale moves to preserve commercial space in Village Centers amid housing push Here s where Bay Area home values have changed since the pandemic San Pablo passes on implementing stronger renter protections Will lower mortgage rates save California s housing sphere The Fay a -story apartment building at the corner of South First Street and East Reed Street in downtown San Jose s lively and trendy SoFA district is in default on a million construction loan documents filed on July with the Santa Clara County Recorder s Office show Perched next to Interstate at East Reed St the -unit Fay apartment building is a prominent tower at one of the key gateways to downtown San Jose When The Fay formally opened its doors with much fanfare in December the building s owners and San Jose authorities expressed the hope that the tower s hundreds of tenants would help inject additional vibrancy into the city s downtown To be sure the tower s residents can still fulfill that role The loan default however raises the specter that a new owner could wind up with the apartment building Why The lender might seek to foreclose the loan and put the property up for auction or seize the tower to satisfy the loan delinquency In the property s owner an affiliate of residential developer Scape bought the advance site paying million for the parcel In Scape an England-based real estate firm obtained a loan from a Madison Realty Capital affiliate to finance construction of the residential tower county records show Murro a Scape brand developed the tower In late the building was completed and residents began moving into The Fay whose upper floors command spectacular views of San Jose and the Santa Clara Valley The official notice of default filing stated that the Scape affiliate owed million as of June In loan default cases interest late fees and penalties could cause the amount owed to exceed the amount of the original financing The loan default is a reminder that economic maladies continue to afflict the Bay Area s apartment office hotel and retail sectors to varying degrees even as the end of the coronavirus outbreak and its disruptions recede into the past Apartment property loan defaults and foreclosures have become particularly acute in the East Bay Lenders have seized multiple apartment buildings to satisfy delinquent loans The struggles of the apartment field could lead to fading values for these types of properties a dilemma that haunts other segments of the commercial real estate area such as office buildings and hotels The effects of slumping property values extend beyond the owners of real estate Property value trends can imperil revenue for an array of inhabitants agencies If real estate values turn soft in a region the decline could impede a crucial revenue stream for cities counties regional agencies and school districts