SAN JOSE — A construction firm has filed papers that seek to shove the owner of a San Jose housing tower into involuntary bankruptcy, a proceeding that arrives at the same time the property faces foreclosure over a delinquent real estate loan.
Suffolk Construction has launched an involuntary Chapter 7 bankruptcy proceeding against the real estate affiliate that owns The Fay, a 336-unit, 23-story apartment tower at 10 East Reed Street in downtown San Jose.
The tower, developed by two real estate firms, Scape and Morro USA, could be auctioned off this year due to a $182.5 million construction loan that’s in default, according to documents on file with the Santa Clara County Recorder’s Office.
Suffolk, a general contractor that was responsible for the overall construction work on the tower, has also sued the owner of The Fay in Santa Clara County Superior Court, documents filed in July show.
The construction firm claims that the owner of the housing tower failed to pay Suffolk $9.3 million for work that Suffolk accomplished in the construction of the tower, according to the county court documents.
On Nov. 12, Suffolk Construction filed a petition in federal court to force the tower’s owner into a Chapter 7 involuntary bankruptcy in an attempt to recoup some of the debt that Suffolk believes the owner has failed to pay.
Scape and Morro officials couldn’t immediately be reached for comment. In Santa Clara County Superior Court filings, the general contractor and the project’s lender expressed concern the owner of the tower would be a no-show in the legal proceedings.
“Suffolk believes a significant procedural concern is that the owner has not appeared, and it seems unlikely that it will,” Suffolk Construction and the project’s lender, an affiliate of Madison Realty Capital, stated in a Santa Clara County court filing on Nov. 7.
In 2021, the tower’s owner obtained the loan from Madison Realty Capital to finance the project’s construction, county records show. The loan went into default in July.
The specter of foreclosure for The Fay is in sharp contrast to the cheery outlook for the housing high-rise in December 2024, when The Fay held a grand opening to celebrate its launch.
City officials expressed hope at the time of the grand opening that the hundreds of people who would potentially live in The Fay would be able to contribute to a more lively downtown after years of uncertainty following the COVID outbreak.
The new tower is facing difficulties at the same time that downtown San Jose is battling a slump in its office market, resulting in a lack of office workers in the city’s central business district.
The Fay’s location at the confluence of South Market, South First, and East Reed streets places it within downtown San Jose’s trendy SoFA district, a hub for live entertainment, restaurants, bars, theaters and arts.