Downtown San Jose housing tower faces default on city deal


An uncertain future confronts the development, which is located in the North San Pedro Square area of San Jose and was proposed by Z L Properties. Z L, a China-based developer with a Foster City office, has launched efforts to construct several ambitious projects in the urban core of the Bay Area’s largest city.

But the project, located near the northwest corner of West Julian and Terraine streets, has encountered delays significant enough that San Jose city officials now deem the tower complex to be in default on a development agreement with the city and an affiliated government agency.

“Z L Properties is in default of its obligations pursuant to a disposition and development agreement for Block H in the North San Pedro Housing Project Area,” according to a staff report prepared for a San Jose City Council meeting scheduled for April 16.

The project was designed to deliver 305 residential units and ground-floor retail to downtown San Jose.

Downtown San Jose, Calif.

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San Jose Mayor Sam Liccardo indicated disappointment with the delays that have surfaced for this project, which is being developed by an affiliate of Z L Properties.

“The firm has missed deadlines on several projects, including this one,” Liccardo said.

If built, this development would sprout next to State Route 87 and help create a gateway for that section of downtown San Jose, which could become a residential village a short distance from the Diridon train station and a transit-oriented development proposed by Google.

“Ultimately, Z L experienced construction delays due to a number of external factors such as trade contractor availability and an escalation of construction costs,” said Lawrence Fassler, general counsel with Z L Properties.

While no final decision has been made, the city could seize ownership of the property.

The other downtown San Jose projects launched by Z L Properties are all residential: the 640-unit former Silvery Towers development that is now known as 188 West St. James near the corner of St. James and North San Pedro streets, the 220-unit 252 North First complex, also known as Park View Towers, whose centerpiece is an old church; and the 708-unit complex of two residential towers at the site of a defunct Greyhound Bus station at 70 S. Almaden.

The projects have encountered differing difficulties.

This news organization reported this week that an October 2018 default on an $8.8 million loan jolted the company’s Greyhound Station project. Z L Properties was able to remedy the delinquency, which the developer said arose from a dispute with the property’s seller. In February, a Z L affiliate obtained a $19.5 million loan from Shanghai Commercial Bank to provide funding until the Greyhound project construction begins, as well as cash for other activities.

The 188 West St. James towers became the focal point of a federal investigation that determined 22 people who worked on construction of the development were forced to work without pay and held in captivity until they were freed in August 2017.

Project developer Z L expressed dismay when it learned of the violations. The probe eventually led to a federal jury conviction in March of Job Torres Hernandez, Hayward-based owner of several construction companies, on multiple charges arising from harboring and extracting labor from immigrant workers.

At the North San Pedro site, Z L hopes to work things out with the city. Z L became involved with the site when it bought the property for $10 million in April 2017.

“Z L values its relationship with the city and hopes to continue to work with city officials to get the North San Pedro property successfully developed as promptly as possible,” Fassler said.

A timetable to begin construction at the North San Pedro housing site, though, wasn’t immediately clear. The city document noted that construction should have begun by the end of 2017 — which didn’t occur.

“I have no desire to excuse that nonperformance in light of the worker abuse committed by a subcontractor on another of its projects,” Liccardo said, referring to the 188 West St. James complex being developed by Z L Properties.


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