SAN JOSE — A San Jose housing tower that once was touted by local leaders as a future lively downtown hub was foreclosed over a failed loan in a financial setback that shows the high-rise’s value has nosedived.
The Fay, at the corner of South Market Street and East Reed Street, was seized by its lender, an affiliate of Madison Capital Realty, according to the results of a trustee’s sale of the property on Jan. 28.
Rooftop pool at The Fay, a 23-story, 336-unit apartment tower at 10 East Reed Street in downtown San Jose. (George Avalos/Bay Area News Group)
The lender valued the property at $110 million when the financial firm took back the 363-unit tower at 10 East Reed St., as per the outcome of the trustee sale.
“The Fay being seized by its lender is another clear signal of how fragile high-rise housing economics have become in downtown San Jose,” said Bob Staedler, principal executive with Silicon Valley Synergy, a land-use consultancy. “Long entitlement timelines, elevated construction costs, and higher interest rates leave very little margin for error, especially on tall buildings.”
A view of downtown San Jose from one of the upper floors of The Fay housing tower. (George Avalos/Bay Area News Group)
The 23-story apartment complex is perched at a key gateway to downtown in the city’s SoFA district, a hub of restaurants, nightclubs, cocktail lounges, shops, arts and culture sites, and live entertainment venues.
In 2020, an affiliate of residential developer Scape paid $16.5 million to buy a parcel that it eventually developed into the tower, which is next to Interstate 280 and commands striking views in all directions.
In 2021, England-based real estate firm Scape obtained a $182.5 million construction loan from Madison Realty to finance the tower’s construction, Santa Clara County property documents show.
The $110 million price that the lender placed on the property in order to foreclose on the tower’s loan means the high-rise’s value has plummeted 39.7% below the loan amount.
Now, the lender must decide on the next steps for The Fay, which could mean Madison Capital might scout for a new owner. Lenders typically prefer to remove foreclosed properties from their books as soon as possible.
The Fay’s foreclosure stands in sharp contrast to the cheery outlook for the high-rise in December 2024, when a grand opening was held to celebrate its launch.
San Jose officials expressed hope at the time that the hundreds of people who would potentially live in The Fay would be able to contribute to a more lively downtown.
The Fay, however, is only about half full, primarily due to a lack of parking for its residents, according to a real estate executive who has crafted underwriting scenarios for the housing tower.
The executive, who requested anonymity due to not being authorized to speak publicly about the situation, believes the tower might be worth even less than $100 million.
For the moment, the Fay’s financial failure helps to create a murky situation regarding near-term development in downtown San Jose.
“It raises real questions about how many downtown towers can realistically move forward under today’s conditions,” Staedler said. “Until costs come down and financing stabilizes, getting new high-rise projects off the ground will remain a serious challenge.”