Fraud-linked housing projects have overruns
Court filing indicates COVID-related staff issues behind problems
Fast-rising construction costs have snarled efforts to complete big housing developments in San Jose and Fremont that are tied to a massive real estate fraud case, court papers show.
The projects being saddled with rising construction costs are The Almaden, a 91-unit residential complex on Almaden Road in San Jose; and Savant at Irvington, a 93unit residential project on Osgood Road in Fremont, according to documents on file with the U.S. District Court in San Francisco.
The San Jose and Fremont residential complexes are among the numerous Bay Area properties that were originally proposed or developed by real estate executive Sanjeev Acharya and his company Silicon Sage Builders. The Securities and Exchange Commission has accused Acharya and Silicon Sage of fraud and swindling hundreds of investors. Silicon Sage's properties have been shoved into court-ordered receivership.
The court-appointed receiver, David Stapleton, has embarked on a quest to finish the two condominium projects and then sell the condos to individual buyers once the housing complexes are completed.
As with everything from food to gas, construction is becoming increasingly costly, according to federal court filings by the receiver in the case.
“The receiver continues to scrutinize all construction-related costs and additional aspects of the budget,” Stapleton stated in a court filing in late June. “Correcting these significant and complex issues has required and continues to require substantial time.”
Making matters worse: Coronavirus-linked issues have snarled the processing of requests and updates involving city staffers in both San Jose and Fremont, Stapleton claimed in the filing.
Virus-spawned woes and the worldwide bottlenecks triggered by supplychain issues have shoved construction and materials costs higher.
“COVID-related staffing issues are impacting the (construction) trades and these are not dissimilar from greater socioeconomic factors impacting several industries across the country,” the court filing stated.
And it's become increasingly tricky to recruit and
retain construction workers, Stapleton asserted.
“The availability of competitive workmanship is scarce and when reliable subcontractors are available, their bids are priced at a premium compared with the pre-COVID environment,” the receiver claimed in the legal papers.
These problems have jolted both the San Jose project at 1821 Almaden Road and the Fremont project at 42111 Osgood Road, the legal papers showed.
In September 2021, the San Jose project was expected to require $15 million to $17 million to complete and the Fremont project was anticipated to have a completion cost of $7 million to $9 million.
Now, it's expected that the San Jose Almaden housing development will require at least $37 million to $38 million to complete — including an increase of $23 million to $24 million in “hard costs” and an increase of $14 million in “soft costs,” the court papers state.
Last fall, the Fremont Osgood development was anticipated to require $6 million to $8 million to finish.
Now, the Fremont Osgood housing project is expected to require an additional $22 million to $23 million to complete. This includes an increase of $12 million to $13 million in “hard costs” and an increase in “soft costs” of $10 million.
Hard costs consist primarily of construction materials and equipment, as well as wages for workers. Soft costs include “insurance, consultants, professionals” and other items, the receiver stated in the filing.
The uncertainties and delays that loom over the San Jose and Fremont housing developments also create a
forbidding prospect for Silicon Sage's investors and creditors.
The victims of the alleged fraud hope the proceeds from selling the projects will create funds to repay them after Acharya's real estate empire crumbled beneath a mountain of debts and legal woes.
But the receiver hopes to generate cash through sales of condo units
in both the San Jose and Fremont projects.
In an ominous disclosure, the receiver left open the possibility that the construction expenses could climb even higher.
“The budget is continually being revised as issues and additional items arise,” the receiver stated in the court filing.