Chinese developer Zhuguang Group has defaulted on a $16 million loan backed by a multifamily development site in Rincon Hill, entitled for 205 units, according to foreclosure filings.
The Hong Kong-based firm owed lender Peninsula Lending nearly $360,000 under the loan as of March 5, according to a notice of default filed by the lender. Zhuguang has also failed to pay off property taxes on the site, located at 525 Harrison Street, and has not made mortgage payments since Jan. 1.
PLM Loan Management Services in San Jose is servicing the loan and declined to comment. A representative for Zhuguang did not immediately reply to a request for comment.
Zhuguang bought 525 Harrison from Hines for $36 million in January 2017 and scored a $24 million loan from bridge lender Lone Oak Fund six months later, loan documents show.
The loan was tied to both 525 Harrison and 88 Arkansas Street — which it bought from developer Martin Building Company for $26 million in 2017 — plus an adjacent lot at 1530 17th Street.
Zhuguang then refinanced the Rincon Hill site with the Peninsula Lending loan in April 2021. Peninsula Lending, based in San Francisco, is connected to attorney Sufi Hariri, according to state filings, who runs Atlas Property Management and is the daughter of developer Sia Tahbazof, who pleaded guilty to bribing San Francisco housing department officials in April.
The Harrison site had been approved for 205 units in a 250-foot tower, with 15 percent set aside for affordable housing. It was the long-time home of The Sound Factory nightclub and a two-story structure still sits on the site.
Zhuguang has not moved forward with any building permits at the site, according to Nicholas Foster, the city’s principal planner for District 6. Hines received entitlements on that property in 2015, but those expired in 2018. A new owner would have to file for an extension on the entitlements to allow for a permit to be issued, though Zhuguang has not.
But, “we would most likely not require them to start all over again,” Foster said.
Zhuguang has had some success with its other development sites — at 88 Arkansas, now called 88 at the Park, about half of the 127 condos have sold since sales began in March of 2022, according to Polaris data, with an average of two units selling each month as the condo market, especially outside of downtown, is showing more strength this year. Prices range from about $590,000 for a studio to $1.1 million and up for two-bedroom units. It also built the entitled five-story condo project it purchased in Potrero Hill.
But it’s not the first Chinese developer to face trouble in the city over the last few years, as China’s property struggles have started to spill over into the U.S.. At the end of last year, Zhang Li lost his Hayes Valley condo development to foreclosure after he admitted bribing former Public Works director Mohammed Nuru.
China-based Oceanwide lost its project in downtown San Francisco, set to be the second-tallest building in the city after Salesforce Tower, to foreclosure last year. The lenders have not yet found a buyer for the project, and mechanics liens and unpaid taxes continue to pile up.
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