SAN JOSE — A downtown San Jose historic church site where a troubled real estate firm has proposed the development of two housing towers could land in a foreclosure proceeding due to a fresh lawsuit.
DLR Group, the architect for the never-built housing complex and the redevelopment of the old church, has filed a lawsuit in Santa Clara County Superior Court that seeks to recover at least $400,000 in design work the vendor claims the project developer, an affiliate of Z&L Properties, never paid.
All of this is occurring at a time when San Jose Councilmember Omar Torres and Mayor Matt Mahan have launched an effort to ensure the owner of the blighted church site completes its obligation to renovate the historic structure located at 43 East St. James Street.
DLR Group is pursuing a potential court-ordered foreclosure of the architectural firm’s lien against the property and a sale of the property to satisfy the debt.
“252 N. First St. Development LLC (the Z&L Properties affiliate) breached the contract by failing to pay DLR’s invoices in a timely manner,” DLR Group stated in papers on file with the county court. “As a proximate result of the defendant’s breach, DLR has been damaged,” DLR stated in the lawsuit.
Z&L Properties, the defendant in the lawsuit, responded in court papers and denied the allegations.
“The defendant alleges that said complaint fails to state facts sufficient to constitute a cause of action against the defendant,” Z&L’s affiliate stated in its first point in the reply. In the second point in the reply, Z&L’s affiliate stated, “Complaint is barred by the applicable statutes of limitations contained within the California Code of Civil Procedure.”
Darius Chan and Henry Yu, attorneys with the San Francisco office of CCD Law Group, which is representing the Z&L Properties affiliate in the court case, weren’t available for comment Thursday afternoon in connection with the litigation.
China-based Z&L Properties has proposed several housing tower projects in downtown San Jose but has completed only one of them, a double-tower project at 188 West St. James Street. Two high-profile projects are stalled without breaking ground.
The real estate firm’s affiliates have sold two properties in recent years, including one transaction this year:
— In 2021, Z&L Properties sold a 1.6-acre development site near the corner of Terraine and Bassett streets. Z&L’s plans for a big residential tower at that location had stalled. An alliance led by development firms Westbank, real estate entrepreneur Gary Dillabough and Terrascape executives Tony Arreola and Mark Lazzarini paid $11.4 million for the Terraine Street parcel.
— In January 2024, Z&L sold the vast Richmond Ranch in South San Jose for $16 million in the first step of an intricate set of deals to protect the 3,654-acre property’s hills, vales and fields as open space, a hiking area and a nature preserve.
Despite its very recent gain of $16 million, no evidence suggests Z&L Properties has taken steps to protect the historic church property, located on a site bounded by East St. James Street, North First Street, Devine Street and North Second Street.
Among the claims that DLR Group made in its lawsuit: The statute of limitations doesn’t bar the legal efforts to foreclose the lien. Why? The Z&L affiliate agreed on multiple occasions to an extension of the lien claim that DLR originally filed in 2019.
“252 N. First’s agreements to the extensions of credit relating to the claim of lien restarted the time applicable to the calculation of any period of limitations,” DLR Group stated in the court papers.
DLR Group asked the court to grant its request to foreclose the lien and to issue a judgment allowing for the sale of the property. If the property is sold, the proceeds of the sale would be used to satisfy DLR’s unpaid debt. DLR also said it might be a bidder to purchase the property.
While the various legal maneuvers proceed in the courts and the bureaucratic endeavors meander through City Hall, the old church remains a forlorn and empty structure next to a field, parking lot and groups of vehicles on the site.
“It’s not surprising that another company hasn’t been paid by Z&L,” said Bob Staedler, principal executive of Silicon Valley Synergy, a land-use consultancy. “The community wants action on this site.”