In 2021, a brand-new 12-story condominium building was completed in San Francisco’s Hayes Valley. But despite robust demand in a city grappling with a housing crisis, the complex has sat vacant for three years because its developer, Z&L Properties, a company run by Chinese billionaire Zhang Li, became embroiled in one of the city’s ugliest political scandals at the same time.
Now, months after Li and his company pleaded guilty to conspiracy to commit fraud, the building at 1554 Market St. is moving into the hands of a new owner, who hopes to open up the 109 units as rentals instead, a preliminary application submitted to the city last week shows.
According to public records, Steve Hong, a Southern California-based real estate investor, foreclosed on Z&L’s $76.79 million construction loan in early November after the Chinese developer stopped making payments.
Even before he acquired Z&L’s debt in an auction, Hong opened a company called Oak SF LLC in August, according to records filed with the Secretary of State. Hong declined a request for comment from The Standard.
Z&L had originally secured the loan with the Massachusetts Mutual Life Insurance Company in 2019 to push the then-stalled project forward. As the building was set to be completed, Z&L had marketed individual units for sale, even taking more than a dozen deposits from eager buyers, before apparently walking away from those deals in the wake of the corruption scandal.
Hong told the San Francisco Business Times this month he was in the process of taking ownership of the building known as the Oak.
His application to the city planning department is a “conditional use authorization request” to change the Oak from condos into a for-rent property. Documents also show that the new owner intends to set aside up to 13 units for affordable housing.
According to RentCafe, a website that aggregates online apartment listings, the average rent in Hayes Valley has been hovering around $2,600 a month since November 2020. Previous online listings for the Oak had studios priced at $625,000 and two-bedroom offerings at $1.5 million.
Earlier this year, when innovations in artificial intelligence began taking off as the tech industry’s latest boom, the neighborhood was also dubbed by some as “Cerebral Valley” for its cluster of Victorian homes turned “hacker houses.”
Dan Sider, chief of staff for the city’s Planning Department, told The Standard that the conversion will require approval from the San Francisco Planning Commission and he anticipates that Hong’s application will get a hearing in the first quarter of the new year.
While he believes that all parties are interested in getting the Oak occupied as soon as possible, Sider said Hong’s group should come to the hearing prepared to answer claims from buyers who had agreed to purchase condos from Z&L but were unceremoniously spurned.
Since its guilty charge, the Chinese developer has left a string of broken real estate deals and uncompleted projects across the Bay Area that have yet to be answered for.
Just a few weeks ago, Z&L fell into default on homeowner association fees due at its two-tower luxury condo complex in San Jose, which is largely vacant. Meanwhile, a nearby dilapidated historical church and an abandoned Greyhound bus station that were both supposed to be turned into housing by Z&L also sit untouched.
The company, which was once based in Foster City and dubbed itself as "California's Premier Condominium Developer," could not be reached for comment. Its website is now defunct.
As a result of the guilty plea, Z&L Properties agreed to pay a $1 million fine and was required to enter into a corporate compliance program to prevent corruption. Because of this, industry observers believe the company is largely in retreat from the Bay Area market. The courts and lenders will likely keep circling its remaining properties.
Li, for his part, barely saw his day in court. After he accepted the charges, he was on a plane home to China just a few hours later.