SAN JOSE — A big residential development that would have brought more than 800 affordable homes to downtown San Jose has been seized through the foreclosure of its delinquent loan.
The project, located at 199 Bassett St. in San Jose’s up-and-coming North San Pedro neighborhood, was slated to produce 803 affordable co-living residences.
Now, however, the future has turned murky for the downtown San Jose housing project.
The original loan that was foreclosed totaled $14.74 million when it was issued in 2019 by lender Arena Limited SPV, according to documents filed at that time with the Santa Clara County Recorder’s Office.
The collateral for this loan is the 199 Bassett St. property. The loan agreement enabled the lender to seize the site, currently occupied by a large commercial building, to satisfy the delinquent debt.
In June 2021, the lender filed a notice of default for the loan, setting in motion the process to foreclose the loan.
These aren’t the only financial complications to challenge Starcity regarding this project.
The seller of the property, an affiliate controlled by the principal executives of Cupertino-based development firm KT Urban, provided $6 million in financing to buyer Starcity, according to a lawsuit filed in 2020 in Santa Clara County Superior Court.
The KT Urban loan isn’t secured by the property as collateral and is a promissory note rather than a mortgage, the court records state.
Starcity, in its first response to the KT Urban lawsuit, categorically denied all of the allegations and claimed that KT Urban had no basis for its complaint.
In June of this year, Starcity was taken over by a rival co-living firm, New York City-based Common. The acquisition, however, didn’t include the Starcity projects in San Francisco or the downtown San Jose parcel.
The plan at the time was to find a buyer for the San Jose and San Francisco properties, but none has emerged.
For the downtown San Jose site, a brief auction was conducted on Monday but no buyers emerged to bid on the 199 Bassett site.
The lender paid $100,000 to take back the property and gain ownership of the site Monday.
The next major question is what might be the future development plans for the property, which is in a choice location in downtown San Jose.
Lenders whose expertise is to provide real estate financing typically prefer not to develop projects themselves.
That means Arena Limited SVP, which is an affiliate of New York City-based Arena Investors, might seek to sell the property that it now owns.
The property’s San Jose-approved entitlements for the affordable housing tower are still current and could be used to construct the proposed project.
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