Lender Seizes Blighted Office Building in San Jose

The lender for a blighted office building in West San Jose has seized the property after its second foreclosure following a failed attempt by Kochland to turn it into homes.

Emerson Vista, a San Jose-based lender, assumed ownership of the two-story building at 826 North Winchester Boulevard after Kochland, an affiliate controlled by Kenneth Ryan Koch of Grass Valley, defaulted on a $505,000 loan, the San Jose Mercury News reported.

The developer, who planned to replace the L-shaped building with 137 apartments, had received a notice of default in December.

“The community deserves something way better,” Dr. Tal Solomon, the principal veterinarian at Arch Veterinary Services next door, told the Mercury News. “We have had several fires in the last few months, one of which damaged the vet hospital.”

The vacant two-story office building, covered with graffiti and surrounded by a chain-link fence, has cycled in and out of foreclosure for years. Since the start of the pandemic, the Winchester Professional Building has had three owners and faced two foreclosure proceedings.

The 11,700-square-foot building north of the Westfield Valley Fair and Santana Row malls was seized through foreclosure in 2021. In December of that year, Koch bought the L-shaped building for $10.75 million.

He then failed to repay its loan of $6.45 million, according to the lender, Sacramento-based Socotra REIT, and the site was slated to be auctioned on Jan. 6.

But the foreclosure sale was canceled after Koch landed two loans in late December totalling $1.23 million. The loans bought Koch some time – until Emerson Vista, a third lender, demanded payment.

Koch isn’t the first developer to hit the wall at 826 North Winchester.

In March 2020, Kenneth Colbert, a Redondo Beach-based investor, paid $8.25 million for the building after securing a loan for $6.1 million. After the property’s mortgage became delinquent, the building was auctioned off through a foreclosure.

In June 2021, a group led by Los Gatos-based Sridhar Capital paid $2.9 million at auction to buy the offices, built in 1958. Two recent owners had planned housing at the 0.6-acre site.

Last year, Colbert’s group proposed a mixed-use complex with ground-floor shops and restaurants.

In May, Koch’s group proposed a five-story mixed-use housing complex.

This year another Koch affiliate lost two properties to a foreclosure seizure in Los Gatos, according to the Mercury News. On Jan. 25, two Downtown Los Gatos commercial properties that Koch owns through a different affiliate were seized by a lender in a $7 million foreclosure auction.

— Dana Bartholomew