Buyers flock to grab downtown San Jose condos in foreclosure auction

SAN JOSE — In an opportunity most would-be Bay Area homeowners can only dream about, a handful of buyers snagged nine condominiums in a downtown San Jose housing tower at auction — paying an eye-popping average of just $31,900 each.

Despite hot tempers and court maneuvers to delay the sales, the hours-long auction of the condos at 188 West St. James Street proceeded on Monday, giving winning bidders a deal that seems too good to be true. And just might be.

The auctioned condos are each two-bedroom, 1,200 square feet units. Located across from San Pedro Square, one of the Bay Area’s hottest spots for food, drinks and nightlife, many units command striking views of San Jose and the Bay Area.

“This kind of pricing is unheard of in the Bay Area,” said David Taxin, a partner with Meacham Oppenheimer, a commercial real estate company that was not involved in the deal. Other units in the complex have sold for more than $500,000.

China-based Z&L Properties, which developed and owns the two-tower housing complex, had fallen behind in the payment of HOA dues on completed-but-unsold units. The HOA decided to auction the units to buyers who will begin paying the monthly fees after they take ownership. HOAs generally have the authority to attempt to recover delinquent dues by selling property associated with unpaid fees. Proceeds from the sales are expected to cover at least some of the dues owed by Z&L.

Nine of the condos ultimately sold to five buyers who paid between $31,500 and $32,300 per unit. A reporter in attendance observed bidders striking up unofficial deals with each other to avoid bidding wars on individual units.

One buyer bought three condos, two other buyers each bought two condos, and two other people each bought one unit. The HOA wound up owning a 10th unit that attracted no outside buyers. The buyers all declined to be identified.

Monday’s auction did not go entirely smoothly.

Z&L had recently won a court-issued restraining order to temporarily delay a foreclosure proceeding to auction off the condos. The order followed a lawsuit by Nixon Peabody, a law firm representing Z&L, which alleged impropriety by the HOA members in seeking an auction.

As the auction was about to get underway, Morgan Cahill-Marsland, a real estate attorney with the builder’s law firm, presented a copy of the April 2 temporary restraining order to a representative for Nationwide Reconveyance, the trustee conducting the auction on behalf of the HOA.

Cahill-Marsland warned the attendees — and prospective buyers — that the auction was being conducted in violation of the court-imposed restraining order.

The representative, who declined to identify himself, contacted Nationwide Reconveyance to discuss the court order, and after a lengthy consultation, proceeded with the auction.

“There were some truly unbelievable events at the auction,” said Bob Staedler, principal executive with Silicon Valley Synergy, a land-use consultancy, upon hearing about the auction.

Cahill-Marsland declined to comment. Maria Kao, an attorney with Briscoe Ivester & Bazel, a law firm that represents the HOA, also declined to comment. Kao also appeared at the auction.

The auction involved just a small portion of condos in the 640-unit complex. Z&L has sold a number of homes in the 320-unit western tower. The eastern tower remains unoccupied.

But Monday’s proceedings represented a fresh twist in the long-running saga of Z&L Properties in San Jose.

The company has proposed several projects downtown but has yet to build anything besides the two-tower complex on West St. James. Over the last decade, the high-rises have endured numerous setbacks, include lawsuits, disputes with contractors, development delays, and construction workers who were forced to live in a locked shipping container in an East Bay industrial yard.

As for the recent condo auctions, Z&L has 90 days to regain ownership of the just-sold units — if the company pays the delinquent dues, late fees and penalties for each condo.

For now, though, the buyers of the nine condos paid a stunning fraction of what people might expect to pay in a region where the average home goes for well north of $1 million — a move that could have long-range implications.

“Prices this low,” Taxin, with Meacham Oppenheimer, warned, “could affect the future values for the condos in the tower.”