San Jose’s The Fay Apartments Headed to Foreclosure

A lender is closing in on taking control of The Fay, a newly built 23-story apartment tower in San Jose’s South First Area district.

The lender, an affiliate of Madison Realty Capital, began the final stages of a foreclosure process that could reclaim the 363-unit high-rise at 10 East Reed Street before the end of the year, the East Bay Times reported.

The move comes after its developer Murro defaulted on a $182.5 million construction loan this summer.

Scape, the London-based real estate firm that developed the project through its Murro brand, owes the lender roughly $201.5 million, including the unpaid loan balance, interest, penalties and late fees, the lender alleges. The firm would have to pay the full amount to stave off a foreclosure auction.

Scape bought the SoFA site in 2020 for $16.5 million and landed the Madison Realty Capital financing the following year to build The Fay.

The tower opened late last year, adding residences to the district largely known for retail, restaurant, nightlife and entertainment. The project was hailed by San Jose Mayor Matt Mahan, who said it would be the first of several high-rises needed to sustain the city’s downtown revival.

“A big part of our success has to be residential density,” Mahan said at the opening last December. “This is the first residential high-rise building we’ve seen in a few years, and it certainly is not the last.”

The foreclosure threat speaks to the troubles that Bay Area multifamily developers have faced in recent years, including high interest rates and construction cost inflation.

City officials are hopeful that completed towers like The Fay will help fuel the pedestrian and retail energy they envision for the South of First Area.

If Madison Realty Capital proceeds with the foreclosure, it would likely take possession of the building, potentially at a steep discount to replacement cost.

— Chris Malone Méndez