The head of a China-based development firm with major land holdings in San Jose has been arrested on allegations of using bribery and kickbacks to gain development approvals in San Francisco.
Zhang Li, whose Z&L Properties has two long-stalled development projects in San Jose, was detained in London on Nov. 30 on a warrant from the Northern District of California. The warrant alleges Zhang was part of a scheme to bribe public officials between 2015 and 2020, according to Reuters.
It’s unclear what fallout could result from his detention, though one local real estate expert said it could be the last straw in a string of delays and challenges for Zhang’s remaining San Jose projects, and could force the company to sell them off.
“I think (Z&L Properties) is going to want to get out of this market,” said Bob Staedler, a development and land use consultant and San José Spotlight columnist.
A representative of Z&L could not be immediately reached for comment on Wednesday.
In San Jose, Z&L has owned property at 252 N. First St., just north of St. James Park, for about five years. The company planned to revitalize the area with the “Park View Towers” project—two towers with a total of 221 homes, and almost 19,000 square feet of retail space. Nothing has been built.
The project was also intended to include the long delayed renovation and preservation of the Church of Christ Scientist building, which has been tarped for years.
The site was a former city-owned redevelopment property that was sold to Swenson and resold to Z&L in 2017 with the city’s blessing. Staedler said due to all the delays, the city likely has the legal authority to put out a call for new development proposals on the property.
“Something should have happened with it by now,” Staedler said. “That blighted property doesn’t help the church, it doesn’t help the park have its full potential. I think it just hurts the city as a whole.”
The company sold off another former redevelopment property last year to a development group that includes Gary Dillabough and Canadian firm Westbank, at 323 Terraine St., where a 319-home development is planned.
Z&L also planned to build two high-rise towers at the former Greyhound station site at 70 S. Almaden Ave., comprising just over 700 condominiums and nearly 14,000 square feet of retail space. No building has taken place there, either.
Zhang is the co-founder of Z&L and an executive director of one of China’s largest real estate firms, Guangzhou R&F Properties Co.
He was named in multiple media reports in 2020 as a developer alleged to have provided former San Francisco Public Works Director Mohammed Nuru with expensive wine, gifts and luxury hotel stays to grease the wheels on Z&L’s delayed 555 Fulton St. condominium project.
But this week, following reports of his arrest, R&F issued multiple statements challenging the allegations against Zhang and putting distance between the company’s operations and Z&L.
R&F claimed in a Dec. 12 WeChat post that it would be taking “legal action against false accusations” that Zhang was involved in a bribery scheme “for hosting a banquet in China for a former executive of San Francisco’s Public Works Department and providing him with a hotel stay.”
In a regulatory statement filed with the Stock Exchange of Hong Kong on Dec. 13, the company said it was aware of media reports about the U.S. case against Z&L and that Zhang was granted bail, but clarified that R&F did not provide any of the bail money.
Staedler said before news of Zhang’s arrest, Z&L likely would have tried to recoup their investments in the San Jose properties, but that could change now.
“I think they’re going to lower their expectations for value for those properties and just sell them quickly,” Staedler said. “I think they’re going to just want to dump the properties.”
The company recently completed its dual-tower residential project at 188 W. St. James St., formerly known as the Silvery Towers, after several delays. The project includes 643 condominiums, but has only sold a few units so far, Staedler said.
That project faced accusations that some laborers on the project were forced to work without pay and were living in squalid conditions in a home in Hayward.
One of the development’s employees died after a fall at the project in 2018, prompting a state probe.