SAN JOSE — The site of a big affordable housing development in downtown San Jose that never got off the ground is headed for an auction and foreclosure as soon as February.
The property that is headed towards foreclosure on its loan if the lender is unable to auction off the site is located at 199 Bassett St. in downtown San Jose.
The proposal for the site envisioned a co-living residential development where 803 units would have sprouted in an up-and-coming neighborhood in San Jose’s urban core.
Construction never got underway on the project, however, and the lender is threatening to foreclose on the loan and seize ownership of the property, which is near the corner of Bassett Street and Terraine Street.
The developer of the project and property owner, an affiliate controlled by Starcity, a developer of affordable apartments and co-living residential complexes, bought the site in 2019, paying $18 million for the site.
At the same time that the Starcity affiliate bought the property, the real estate developer obtained a loan from an affiliate of Arena Investors, Santa Clara County property records show.
The loan at the time it was issued totaled $14.7 million, according to the public property documents.
The lender has now scheduled an auction to attempt to determine if a bidder will emerge to buy the property with the delinquent loan. The foreclosure auction is scheduled for early February.
As of August 2021, Starcity owed $13.6 million on the mortgage, according to public documents.
“The site is very challenging,” said Bob Staedler, principal executive with Silicon Valley Synergy, a land-use consultancy. “It is adjacent to a very successful redevelopment area, but too narrow for a significant tower.”
These aren’t the only financial complications to challenge Starcity in connection with this project.
The seller of the property, an affiliate controlled by the principal executives of Cupertino-based development firm KT Urban, provided $6 million in financing to buyer Starcity, according to a lawsuit filed in 2020 in Santa Clara County Superior Court.
The KT Urban loan isn’t secured by the property as collateral and is a promissory note rather than a mortgage, the court records state.
Starcity, in its first response to the KT Urban lawsuit, categorically denied all of the allegations and claimed that KT Urban had no basis for its complaint.
In June of this year, Starcity was taken over by a rival co-living firm, New York City-based Common. The acquisition, however, didn’t include Starcity’s projects in San Francisco or the downtown San Jose parcel.
The plan at the time was to find a buyer for the San Jose and San Francisco properties.
The loan default on the Bassett Street site might complicate the downtown San Jose effort. Prospective buyers often wait until the foreclosure is complete because they can then buy the delinquent property at a big discount to the loan amount.
“It will be interesting to see what the winning bidder proposes,” Staedler said.
