Bankruptcy Watch: New San Jose Apartment Tower Filed for Bankruptcy

When delivery does not eliminate structural risk

Neo on First, a multifamily property located at 975 South First Street in San Jose’s Washington-Guadalupe neighborhood, was delivered as a completed apartment asset expected to transition into stabilization and ongoing operations.

That transition has now been interrupted. The ownership entity behind Neo on First filed for Chapter 11 bankruptcy protection in January 2026 in the U.S. Bankruptcy Court for the Northern District of California (San Jose Division). Court filings indicate the case involves approximately $23.5 million in liabilities against roughly $39.5 million in reported assets, with the property serving as the primary asset of the estate.

The filing follows loan delinquency and foreclosure activity tied to a mortgage of approximately $21 million.

What Led to This Outcome:

Several familiar pressure points appear to converge:

• Post-delivery liquidity strain and early operating performance left a limited margin to service debt and address outstanding obligations.

• Construction disagreements continuing post completion & delivery.

• Highly leveraged capital structure 

• Governance mechanisms that did not force early intervention 

None of these factors are unusual on their own. Together, they reduced flexibility at a critical point in the asset’s lifecycle.

Why the Entity Structure Matters

Neo on First illustrates the distinction between physical completion and structural resilience.

Bankruptcy-remote entities and independent governance are not designed to prevent financial difficulty. Their role is to manage stress once assumptions shift, by isolating risk, preserving optionality, and encouraging earlier decision-making.

When those mechanisms are limited or absent, even relatively modest assets can find themselves with few alternatives once liquidity tightens.

A Broader Pattern the Industry Should Note

Neo on First reflects a broader pattern emerging across urban multifamily markets. As financing costs remain elevated and refinancing windows narrow, projects delivered into a different capital environment than originally underwritten are facing compressed timelines and fewer options.

Increasingly, outcomes are shaped less by location or design quality and more by how risk was allocated, governed, and insulated at inception.

Final Thought:

Delivery without a durable structure is not a resolution.

Building Resilient Structures

For sponsors, lenders, and capital providers involved in development and transitional assets, entity design deserves early and sustained attention. Bankruptcy-remote structuring and independent governance are most effective when implemented proactively, before stress tests the system.

Source: Siliconvalley