SAN JOSE — The owner of a big San Jose office building whose loan has toppled into delinquency and default has filed for bankruptcy, potentially a last-ditch quest to ward off a property foreclosure.
The office building that’s in default is located at 10 West Tasman Drive in north San Jose, according to documents on file in Santa Clara County and at the U.S. Bankruptcy Court.
Heritage 10 West Tasman LLC, the owner of the Tasman Drive office building, filed a petition on April 5 to reorganize its finances under Chapter 11 of the U.S. Bankruptcy Code, court records show.
In 2022, the current owners of the 10 West Tasman building paid $30 million for the property, including buying the structure and a ground lease for the land beneath the building, according to public real estate records.
The loan that’s in default was provided by Copia Lending and totals $29 million, the county documents show.
Copia Lending was poised to auction off the building or to seize it through a foreclosure during an official proceeding that was scheduled for April 8.
However, just before the auction began, the trustee revealed that the foreclosure would be delayed and rescheduled due to the bankruptcy filing.
In prior cases over the last two decades, bankruptcy filings for single-asset entities often achieve little more than a temporary delay in the foreclosure proceedings.
A bankruptcy case, however, can slow down the foreclosure process sufficiently for the borrower to fashion a way to cure the delinquent loan or craft some other accommodation with the lender.
DH Daehyun Kang, the managing member of the bankrupt Heritage 10 West Tasman entity, was listed in the bankruptcy papers as the principal executive for the LLC. The court papers stated that the bankrupt entity is based in New Jersey.
The bankruptcy filing listed Copia Lending as one of the entity’s creditors. The bankrupt LLC also listed other creditors.
Here are some of the largest debts besides the $29 million Copia loan, according to the court papers:
Santa Clara County Assessor and Santa Clara County Tax Collector are owed about $699,516 in unpaid property taxes. The taxes were owed for 2022, 2023 and the first half of 2024.
“The property was assessed at the wrong value,” the bankruptcy filing states. The tax amounts are under appeal, according to the court records.
The Bay Area office market is undergoing seismic shifts due to the coronavirus pandemic.
Before the coronavirus outbreak in 2020, the Bay Area and South Bay office markets were humming due to the robust appetites of tech companies for office spaces and properties to accommodate their respective expansions. Biotech companies added to the leasing and buying frenzy.
The onset of the coronavirus, however, prodded state and local government agencies to impose significant business shutdowns to help curb the spread of the deadly virus.
At the same time, tech companies slashed their appetite for office space, trimmed their property footprints and embarked on layoffs.
Feeble office rents have eroded office building values and created an environment for loan defaults. Some experts believe the problems in the office market could persist through at least the end of 2024.
In some instances, falling values for offices have prompted building owners to file appeals with Santa Clara County real estate officials regarding the assessments on their properties.
The bankruptcy filing also showed that the owner of the 10 West Tasman building is disputing a $91,000 utility bill issued by the San Francisco Public Utilities Commission, a trade debt of $54,000 owed to commercial real estate firm JLL and late fees and trade debts totaling more than $56,600 that are owed to the city of San Jose.
The two-story San Jose office building involved in the foreclsoure proceedings and bankruptcy is located near the corner of West Tasman Drive and North First Street. The building totals 105,000 square feet.
Frequent in-person observations by this news organization in recent days show the building is empty.