San Jose mixed-use tower site loan goes into default amid office woes

SAN JOSE — A loan for a proposed tower project at a prime downtown San Jose site has tumbled into delinquency and default, a fresh indicator that economic woes haunt the Bay Area’s real estate sector.

The Carlysle, as the highrise project is known, faces some financial uncertainties in the wake of the loan delinquency, which came to light through a notice of default filed on Aug. 21 with the Santa Clara County Recorder’s Office.

The 21-story tower was slated to contain a mix of offices, residential units and ground-floor retail or restaurant spaces, San Jose city planning documents show.

The Bay Area office market has become so weak that developers have largely lost their respective appetites for any major new projects unless they have been able to land a tenant before construction begins.

Record-high vacancy levels, feeble rental rates, a contracting tech sector and a growing number of foreclosures have created an ominous landscape for Bay Area offices.

By far, the worst of the office market’s problems are concentrated in San Francisco, where well over one-third of the office space is empty.

Downtown San Jose and downtown Oakland, however, are also bedeviled by economic gremlins in the form of vacant office spaces.

This downtown San Jose project, as originally envisioned, would be a Bay Area rarity in that it would contain a blend of the three major real estate elements in the same tower, if it’s built.

The Carlysle is fully entitled. San Jose city officials approved the project in 2021.

The highrise, however, has yet to break ground and has not landed a publicly disclosed construction loan as of Aug. 22.

In 2021, Santa Cruz County Bank provided the loan that has flopped into delinquency, Santa Clara County real estate records show.

The loan amount is $10 million, according to the public real estate records.

Acquity Realty, acting through an affiliate, paid $20 million in 2021 for the property, which is at 51 Notre Dame Ave. next to Carlysle Street in San Jose.

Santa Cruz County Bank provided the $10 million loan to the Acquity Realty affiliate at the time of the property purchase.

The tower was slated to contain 290 apartments and 158,000 square feet of office space.

The Carlysle would include 12 floors of residential, five floors of offices, and four floors of parking as well as the ground-floor office and retail or restaurant spaces.

Sky-high interest rates, brutal levels of inflation and fast-rising costs for construction materials and labor have coalesced to complicate the ability of developers to launch their projects, especially large ones such as a tower.