(CLICK HERE, if you are unable to view this photo gallery on your mobile device.)

SAN JOSE — A residential towers complex in downtown San Jose has encountered a default on its mortgage, although the project’s developer has resolved the loan woes and believes it has placed the development on improved financial footing.

The project, planned for the site of a defunct Greyhound station at 70 S. Almaden Ave. in downtown San Jose, is designed to become two housing high rises with a total of 708 residential units.

The developer of the Greyhound property is Full Standard Properties, an affiliate of China-based Z & L Properties, a developer with Bay Area offices in Foster City that has launched other major residential projects in downtown San Jose, although none are complete.

“There was a buyer/seller dispute under the original purchase arrangement for 70 S. Almaden Ave. that was quickly settled,” said Lawrence Fassler, general counsel for Z & L Properties, referring to the Greyhound site.

Although the Greyhound development has attained some level of financial stability, a loan default raises questions about when the project might begin construction and be completed.

The other downtown San Jose projects launched by Z & L Properties are all residential: the 640-unit former Silvery Towers development that is now known as 188 West St. James near the corner of St. James and North San Pedro streets, the 220-unit 252 North First complex, also known as Park View Towers, whose centerpiece is an old church; and the 305-unit North San Pedro development at the northwest corner of Old Julian Street and Terraine Street.

“The problems with the Greyhound project make you wonder about Z&L’s ability to perform at all the sites,” said Bob Staedler, principal executive with Silicon Valley Synergy, a land use and planning consultancy.

The Z & L Properties affiliate bought the Greyhound site in April 2016, paying $39 million, according to Santa Clara County public documents. The public files also show that the Greyhound property seller, an affiliate of Cupertino-based developer KT Urban, provided Z & L with $8.8 million in financing at the time of the sale.

Problems surfaced in October 2018, when the KT Urban affiliate that had provided financing for the Greyhound transaction, filed a notice of default on the loan, county property records show.

The default filing amounted to a public disclosure that the lender deemed the mortgage payments to be delinquent.

The delinquent payments totaled at least $6.2 million of the original $8.8 million property loan, according to the public documents.

That $6.2 million consisted of $3.8 million of original principal balance, roughly $1.7 million claimed as part of an arrangement that was part of the agreement between Z & L and KT Urban, and claims for related interest charges.

“The $3.8 million of remaining principal balance was promptly repaid and the parties negotiated an appropriate settlement amount for the claimed contingency amount,” Fassler, of Z & L, said. Eventually, the KT Urban affiliate rescinded the loan default proceeding.

In February 2019, the Z & L affiliate obtained a $19.5 million loan from Shanghai Commercial Bank, county records disclosed.

This new mortgage from Shanghai Commercial, though, appears to be far less than what would be needed to construct two residential towers at the Greyhound site. Projects of this size can often require well over $100 million in construction financing.

The $19.5 million in the Shanghai Commercial financing is what is called a “bridge loan” that provides a financial standby until construction financing can be obtained for the Greyhound project.

Other difficulties have surfaced for projects initiated by Z & L Properties.

The North San Pedro project has stumbled into a default on a development agreement with the city of San Jose. The city has scheduled a meeting on April 16 to determine the next course of action, which could include eventually re-taking ownership of the site. That property was once was owned by the city’s now defunct redevelopment agency.

The first Z & L Properties’ project in downtown San Jose that is underway, 188 West St. James, has endured multiple delays and still isn’t finished, although construction is proceeding.

At the Park View Towers project, Z & L didn’t pay a contractor that was working on renovations at the old church that would be part of the future residential towers on the site, according to the builder, San Jose-based Garden City Construction. That lack of payment halted the work temporarily, Garden City said.

The payments eventually resumed, so did work to protect the old church from the rains and winds of winter.

“There seems to be a chaotic situation with this developer,” Staedler said.