Cupertino Square Trouble Continues as Gramercy Capital Pursues Foreclosure

Fighting between Cupertino Square Mall and Gramery Capital has culminated with a notice of default and sale being issued by the lender with a tentative auction date set for September 10th. The lender, Gramercy Warehouse Funding I LLC and United Commercial Bank, claim that Cupertino Square LLC is in default of its loan for the center.

The shopping center, formally known as Vallco Mall was acquired out of foreclosure in 2003 for roughly $78 million by a trio of investors including Alan Wong, Emily Chen, and John Nguyen. Wong and Nguyen are also behind the failed Vietnam Town development, which is another development funded by United Commercial Bank.

The group seeked to add value by revamping Cupertino Square, as well as rezoning a portion of the property to condominium use. The conversion to land entitled for condominium use was unsuccessful. The ownership brought in an AMC Theatre (the design of which is, in my opinion, is horrendous and is to the benefit of AMC only) and largely has tied up the remainder of the mall’s redevelopment potential. The cost of the theatre construction was expected to be paid for by the re-zone of property to condominium use, which never materialized. As a result, the ownership sold off the property to Orbit Resources LLC, who immediately sold off a portion of the property on Vallco Parkway to Fred Chan’s Evershine Group for roughly $50M for retail and condominium development.

Now, the new owner, Cupertino Square LLC (via Orbit Resources LLC), is wrangling with its money partner and lender Gramercy Capital and United Commercial Bank. The lenders claim Cupertino Square LLC is in the default of its loan; which has a remaining balance of over some $120M. The original loan made in August of 2006 by United Commercial was for $195M. It’s unclear whether this asset will actually make it to the auction block at the courthouse, but the lender seems to be doing all the things it needs to make that happen.

The mall’s fate is unclear, but what is clear is that the owners of the mall since the foreclosure in 2003 have butchered the mall’s chance for redevelopment. What should have been done was to work with the city, the community, and the center’s anchors who own their own land (Sears and JC Penney) to seek a complete demo and rebuild and to bring in a mall operator that knows what it is doing. Instead, the undercapitalized and unexperienced group chose to execute piecemeal leases with tenants, severely limiting the flexibility to work with the mall.

The owners also failed to recognize the strength of the Cupertino office space market, a prospective use which they could have chased in lieu of condominiums. Instead, Apple Computer swallowed 50-acres of land north of the site across highway 280 for future campus development. The amount of office space allocatable to this area of the city is almost entirely dedicated to that development, leaving it unlikely that much more, if any, office space can be brought to this development.

Regardless of whether this mall actually gets foreclosed on and sold, it will be interesting to see what happens.

Similar Posts:

• Cupertino Square Hires New Leasing Team to Help Save Itself
• Vietnam Town Work Halted
• General Growth on the Chopping Block?
• Vietnam Town Troubles Continue
• Valley Fair Expansion To Begin in January

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