Another Downtown San Jose Multifamily Complex in Distress

Any of the parties interested in sorting out the fate of an apartment complex developed a couple of years before the pandemic with an eye on becoming part of a residential hub for San Jose’s downtown had better hurry the way operations and the valuation of the property are going.

The owner of Neo on First, an apartment development with 50 units at 975 South First Street, is in default on a $21 million loan and staring at a foreclosure, the San Jose Mercury News reported. A recent appraisal of the property by Integra Realty Resources, meanwhile, indicates that it has lost nearly 21 percent of its value since a prior estimation by Cushman & Wakefield three years ago, and is now worth around $23 million.

A Cupertino-based developer run by an individual identified as Xuhan You is now engaged in legal fights in two courts in an apparent bid to hang onto the property as its value sinks toward the level of its debt load. One of the suits is against CTBC Bank, which holds the loan on the apartment complex.

CTBC Bank is seeking to take the property through foreclosure in weeks or months, with timing likely to be subject to rulings in the bankruptcy case and a separate legal action in Santa Clara County court.

The Neo isn’t the only multifamily development in downtown San Jose in distress. A lender foreclosed on a 336-unit complex called The Fay last month over a $182.5 million construction loan.

That deal also pointed to a gap between debt levels and property values, with the lender claiming the Fay was worth $110 million. The Fay stood out on San Jose’s skyline at 23 stories, and bought an upscale entry to the boundary between downtown and the city’s SoFa district.

U.K.-based developer Scape paid $16.5 million for the parcel for The Fay and took the $182.5 million construction loan for the project from an affiliate of Madison Capital Realty, which had foreclosed on it.