Developer fraud has pensions at risk
Battles erupt over big apartment projects, leaving future in doubt
SAN JOSE >> Financial and construction woes have jolted San Jose and Fremont residential projects linked to a failed developer and might imperil teacher and public employee pension funds invested in the properties.
The housing projects that are hobbled by the problems created by Silicon Sage Builders and the company’s founder Sanjeev Acharya are The Almaden, a 91-unit residential complex on Almaden Road in San Jose; and Savant at Irvington, a 93-unit residential project on Osgood Road in Fremont.
The San Jose and Fremont residential complexes are among the numerous Bay Area properties that were originally proposed or developed by Acharya and Silicon Sage Builders. The Securities and Exchange Commission has accused Acharya and Silicon Sage of fraud. Silicon Sage has been shoved into court-ordered receivership.
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 who 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.
The problems with the San Jose and Fremont housing developments are so severe that all of the investments in the two big residential complexes are in danger of being wiped out even if the projects are completed, TriGate Capital warned in documents filed with the U.S. District Court on Sept. 30. TriGate heads up a group that is the primary investor and equity owner in both properties.
TriGate Capital in early 2021 provided about $20 million in cash to bail out the two residential projects and prevent their foreclosure by Acres Capital, the primary lender for the two properties.
Acres Capital had provided a $45 million loan for the Osgood Fremont project and a $40.7 million loan for the Almaden San Jose project and was threatening to seize the properties through a foreclosure.
Also at risk of being completely erased: an unspecified amount of pension money from teachers’ and public employee retirement funds that were invested in both projects in the wake of assurances from Acharya
that the residential complexes were bolstered by sturdy financial foundations — when the opposite was the reality.
In an August phone call, a court-appointed receiver who has taken control of Silicon Sage’s collapsed Bay Area real estate empire, warned TriGate that the financial difficulties for the project were severe.
“The projects were unlikely to return even a dollar of TriGate’s $20 million rescue finance, much less provide any return for investors,” the courtappointed receiver told TriGate in the phone call,
according to court papers. The warning was provided “as a courtesy” to TriGate, the court records stated.
A large chunk of retirement funds could evaporate if the parties involved with the San Jose and Fremont projects can’t cobble together a solution to get the projects completed and financially stabilized.
“Private investors and public pension funds and retirement accounts for teachers and other public employees” are among the investors in the two projects, TriGate stated in the court records.
TriGate also believes
that the court-appointed receiver has inefficiently managed the construction of the residential complexes, according to the court documents. TriGate asserts that the receiver’s missteps have undermined the financial stability of the still-incomplete projects.
In May 2021, the cost to complete the Fremont project at 42111 Osgood Road was placed at about $6 million to $8 million, documents filed with the U.S. District Court in San Francisco stated.
The cost to complete the complex at 1821 Almaden Road in San Jose was estimated
to be in the range of $15 million to $17 million, court papers filed at that time showed.
Both of those estimates have ballooned, according to papers filed by the receiver.
“The cost to complete Osgood (Fremont) is estimated to be $18.9 million and the cost to complete Almaden (San Jose) is estimated to be $29 million,” documents filed by the court-appointed receiver show.
The sharply higher construction costs have alarmed TriGate.
“This receiver’s management of the projects has seen the projects waste as
assets,” TriGate said in the court filing.
TriGate seeks to oust the court-ordered receiver from overseeing the San Jose and the Fremont projects. TriGate hopes to resume its project management, which was interrupted when the court-appointed receiver took over these and all the other Silicon Sage projects.
“The focus now should be pushing the projects to completion in the most efficient and cost-effective manner possible,” TriGate stated in the court papers, referring to the San Jose and Fremont housing developments.