San Francisco Corruption: Billionaire Leaves Wake of Troubled Properties

San Jose Mayor Matt Mahan stood outside the historic First Church of Christ Scientist as tattered plastic wrap hung limply off scaffolding encasing the building.

“A beautiful historic landmark has become an eyesore,” he said from the downtown property last Thursday. “Those responsible for this neglected, frankly dangerous, building have not done their part.”

Mahan was taking a stab at Z&L Properties, a development company that purchased the site in 2017 and proposed plans to renovate the storied building but instead left it to languish in plastic wrap, earning it the nickname the “Trash Bag Church.”

The First Church of Christ Scientist is just one of a series of troubled properties the company has managed across the Bay Area in recent years.

Z&L Properties was founded by Zhang Li, a Chinese billionaire and real estate mogul who was arrested in London after the U.S. Justice Department charged him with conspiracy to commit fraud. Last month, Zhang admitted to paying off a top San Francisco official to usher along a high-profile construction project. The controversial development at the center of that case has left one San Francisco neighborhood without a promised Trader Joe’s for over a decade.

But even the Z&L Properties projects that were untouched by the criminal case faced serious problems, The Standard has found. Some of the developments failed to materialize, while the ones that were built left condo owners in the lurch, grappling with construction issues and mismanagement, they say.

Z&L Properties did not respond to request for comment.

Jennifer Lewis was excited to move into a brand new apartment at Z&L Properties’ 188 W. Saint James St. development in San Jose back in July 2022. With a $3.25 million price tag, the 46-year-old tech consultant bought the three-bedroom condo with her husband, looking forward to the lovely view and walkable neighborhood.

She knew it was a new building, so she expected some wrinkles that needed to be ironed out early in her stay. She was right. She soon found that one of her unit’s air conditioners didn’t work and the water pingponged between hot and cold.

“At first, it was just kind of a ‘be patient, let’s see’ thing,” Lewis told The Standard.

But now it’s been more than a year, and despite pleas to building management, Lewis is still dealing with the same issues. To make matters worse, someone broke the two-story glass lobby window last fall, and that eyesore hasn’t been fixed either, Lewis said. Instead, it’s covered with a plastic tarp.

“We’re dealing with bad actors in the builder and management,” Lewis said.

Upset with the condition of the building, Lewis ran for, and won, a seat on the development’s owners association.

Earlier this month, the association’s attorney filed a letter to the court overseeing Z&L’s San Francisco corruption case. The letter alleges that Z&L engaged in insurance fraud, stating that the company opened two different insurance claims on the lobby glass window. The actual cost of the window was about $10,000, but Z&L Properties filed for insurance reimbursements of over $138,000, the letter claims.

All condo owners need to pay fees to the owners association to handle the cost of security, cleaning staff and more. But Z&L is behind on paying its dues on the condos it still owns, which represent about two-thirds of the building, leaving the owners association scrambling to meet basic costs, the letter alleges. The association’s operating funds dipped as low as $2,000 in July, despite facing a $1 million annual budget, the letter says.

The issues at 188 W. Saint James St. in San Jose appear to mirror problems at San Francisco’s 555 Fulton St. development, which lies at the center of Zhang and Z&L’s criminal case.

The owners association at 555 Fulton sued Z&L Properties in July 2022, claiming that the building contained construction defects, including leaking windows, water ponding in stairwells, inadequate hot water delivery, overheating units and more.

In 2018, the FBI recorded a phone call then-San Francisco Public Works Director Mohammed Nuru made to his girlfriend. He had just returned from a trip to China, during which Zhang, who formed Z&L Properties to do business in California, had treated the powerful official to a $10,000 bottle of liquor during a dinner party attended by the vice president of a foreign country.

Nuru and his girlfriend discussed Zhang’s 555 Fulton project, owned by Z&L Properties.

“The windows were made in Mexico, and there’s some kind of defect,” Nuru allegedly said on the call. He went on to say that he was working with a senior San Francisco Department of Building Inspection official to “get all that resolved.”

Zhang has since admitted to bribing Nuru to help with the Fulton Street building. His company, Z&L Properties, will plead guilty to federal fraud charges, pay a $1 million fine and enter into a corporate compliance program designed to prevent future corruption.

A spokesperson for the San Francisco Department of Building Inspection said that while 555 Fulton has not received its certificate of final completion from the city, none of the open issues with permitting pose a risk to residents’ health or safety. He did not have information about a defect with the building’s windows.

The Trader Joe’s that was once promised at that location still remains unrealized, and Z&L announced that it plans to sell the property.

At least 1,000 homes that Z&L Properties announced it would build in the Bay Area remain far from a reality.

The company proposed building two towers on 252 N. First St. in San Jose. The project would have erected 221 homes and almost 19,000 square feet of retail. The company has owned the property for over five years, San Jose Spotlight reported. But nothing has been built as part of that project to date, according to the city’s Planning, Building and Code Enforcement Department spokesperson.

At 70 S. Almaden Ave., San Jose, Z&L proposed turning a former Greyhound station into more than 700 condominiums paired with 14,000 square feet of retail. There has also been no construction on that project, the city spokesperson said.

After San Jose’s mayor called attention to the so-called Trash Bag Church, a local contractor took it upon himself to clear the tarps from the building, KPIX reported.

The condo building at 188 W. Saint James St., where Lewis lives, remains halfway done, with more than 300 units left to be finished, she said.

Meanwhile, she’s done her best through the owners association to help problem-solve for her neighbors who have become frustrated with building management.

“I think the building has potential, and there's a lot of great things that could happen here,” Lewis said. “We’ll eventually get to a place where it’s like, 'I’m proud to live here, and this is what I paid for.”

Noah Baustin can be reached at [email protected]

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