San Jose High-Rise Faces Foreclosure Over $182.5 Million Loan

A significant development is unfolding in San Jose, where a construction loan default is leading to the potential foreclosure of The Fay, a 363-unit high-rise in the SoFA district. The lender is nearing the completion of its efforts to reclaim ownership of the building through a foreclosure process related to an outstanding loan amounting to $182.5 million. Documentation filed with the Santa Clara County Recorder’s Office indicates that the lender could take possession of the property located at 10 East Reed St. before the year’s end.

The real estate firm Scape, headquartered in England, acquired the site for $16.5 million in 2020. Following this purchase, Scape secured financing for construction from a subsidiary of Madison Realty Capital in 2021. The 23-story tower, developed under the Scape brand called Murro, has faced financial challenges that have culminated in the current foreclosure situation.

The foreclosure sale notice reveals that Scape’s affiliate now owes a total of $201.5 million. This figure includes the unpaid principal, late fees, accrued interest, and penalties. If Scape is unable to repay the total amount owed, the property may be auctioned off, marking a significant shift in ownership.

City officials have expressed optimism regarding The Fay’s potential impact on the local economy. They believe that the presence of hundreds of residents could stimulate activity in nearby retail, dining, nightlife, and entertainment sectors. During an event in December 2024 to celebrate the building’s official opening, San Jose Mayor Matt Mahan highlighted the importance of residential density to the city’s growth. “A big part of our success has to be residential density,” Mahan stated. “This is the first residential high-rise building we’ve seen in a few years, and it certainly is not the last.”

As the foreclosure process advances, the future of The Fay remains uncertain. The outcome could have lasting ramifications for both Scape and the San Jose community, particularly in terms of economic development and housing availability. The situation underscores the precarious nature of real estate financing and development in urban areas.