SAN LEANDRO — A section of a massive East Bay development that would create a new mixed-use neighborhood has flopped into a loan default, raising questions about the project’s future in a time of economic uncertainty.
The land in default is located in San Leandro and is a key portion of the Monarch Bay Shoreline development that has been in the planning and approval stages for years in the East Bay city.
Townhouse building in the Monarch Bay Shoreline mixed-use development along and near Monarch Bay Drive between Marina Boulevard and Fairway Drive, concept. (KTGY)
Cal-Coast Development, in partnership with the city of San Leandro, has been working to develop a vast project that would produce 491 homes, including for-sale residences and rental apartments, a 210-room hotel, a restaurant totaling 16,000 square feet, a branch library totaling 2,500 square feet and a reconfiguration of an existing nine-hole golf course on the site.
All told, the development site would total 75 acres in a scenic stretch of San Leandro’s shoreline along and near Monarch Bay Drive between Marina Boulevard and Fairway Drive.
Site plan for Monarch Bay Shoreline, a mixed-use development in San Leandro. The plan shows for proposed locations for single-family homes, townhouses, apartments, and sites for a restaurant, hotel, market, golf course, butterfly habitat, park and waterfront. (City of San Leandro)
Now, however, a $24.9 million loan for 15.9 acres of land is in default and could be seized by its lender, according to documents filed on Feb. 20 with the Alameda County Recorder’s Office.
In an extra complication, the city of San Leandro is the lender. In December 2022, San Leandro provided the loan to Cal-Coast Development, when the real estate firm paid slightly under $29.9 million to purchase the property. In addition to providing the loan, the city also sold the land to Cal-Coast.
On the 15.9-acre site affected by the loan default, Cal-Coast Development has proposed the construction of 206 for-sale houses, consisting of 144 single-family residences and 62 townhouses.
The loan default means that the city could seize the land through a foreclosure proceeding.
The parcels that are in default are located at 2599 Fairway Drive in San Leandro, Alameda County property records show.
The financing was structured in a way that the city didn’t provide any cash to the developer. Instead, the developer made a $5 million down payment to San Leandro.
The financing package enabled Cal-Coast to scout for conventional construction financing for this stage of the project.
Despite the loan delinquency, San Leandro officials are attempting to fashion a solution that would keep the project moving forward, Paul Sanftner, public information officer in the San Leandro City Manager’s Office, stated in email comments he sent to this news organization.
The developer and the city were obliged to complete the property purchase by the end of 2022 to comply with certain requirements in the California Surplus Lands Act.
At the time of the property purchase at the end of 2022, however, it was becoming clear that the financial markets had shifted in a big way. The changes in the financial markets were making it tougher for Cal-Coast to find construction financing for the 15.9 acres where the for-sale residences were slated to be built.
“With interest and inflation rates rising markedly and an uncertain economic outlook, lenders have become more cautious and limited in their lending activity, opting to ‘sit on the sidelines’ for the remainder of 2022,” Katie Bowman, San Leandro’s economic development director, wrote in a staff report in December 2022.
By all accounts, 2023 was a tough year for developers to obtain construction financing and 2024 so far isn’t looking much more accommodating.
City staffers warned that the real estate financing markets might remain tricky for some time after the property purchase was completed.
“The amount of time for the market to stabilize and lenders and developers to be ready to invest and begin projectsis unknown, with the potential for market stabilization to not come until the end of 2023 or into 2024,” the city economic development director wrote in the December 2022 staff memo.
For some time after the city provided the seller financing, Cal-Coast was current on its payments.
“The financing had an initial term of six months, with up to six three-month extensions through the end of 2024,” Sanftner stated in the email comments. “To receive extensions, the developer must pay all interest accrued upon the loan. The developer was current on the interest-only payments until December 30, 2023.”
Starting in January 2024, the payments went into default, which allowed the city, as the lender, to demand that the financing be paid in full.
The non-payments triggered the loan default that was filed on Feb. 20, the county real estate records show.
San Leandro officials hope to craft a solution to the financial dilemma that confronts the project.
“The city is currently working with the developer to address the project’s financing,” Sanftner said.