Commercial Real Estate Blog

When Vallco Mall (former name of Cupertino Square) was acquired out of bankruptcy a few years ago, the developers intended on creating an ethnically themed shopping center. After some struggles, the group brought onboard an AMC Theatre, a Lucky Strikes Bowling Alley, and a few other anchor restaurant tenants (Alexander’s Steakhouse, Dynasty Chinese Restaurant) and the mall took a more traditional approach.

The mall went through a partial ownership change less than a year ago when Orbit Resources bought into the project. About a month ago, the mall owner, Cupertino Square LLC, had to seek bankruptcy protection to prevent its lenders, Gramery Capital and United Commercial Bank, from pursuing foreclosure.

Orbit Resources has now brought on GD Commercial out of Milpitas to help it get the mall leased. By bringing on GD Commercial, it seems the owner is again taking the beleaguered mall in the direction of an asian center.

This seems to be the last ditch effort for Cupertino Square under its current ownership, but I remain skeptical of this team to pull it off. What has been lacking from the beginning has been a known and proven mall operator that knows shoppong malls from the ground up - from traffic patterns, to tenant selection and placement, to leasing, construction coordination, and management. I suspect that doesn’t quite exist here with the current team.

The real challenge at Cupetino Square is getting tenants to buy into leasing those portions of the mall which are not located near the theatre, which is the currently the main draw and where all the tenants want to be. The only way to solve this problem is to bring other anchor tenants onboard, and that is something that will likely prove to be a significant challenge for the owner, lender, and potential tenant to accomplish. Without an anchor, the leasing will have to happen outward from the theatre (tenants are likely not interested in areas of the mall which are unproven), and that is something which might take more time than the current ownership has.

I’ll keep an eye on this, but I have had the chance to speak to a few well known shopping mall investors and operators who have taken a look at the Cupertino Square deal, and the concensus amongst them is that the mall is worth less than the value of the outstanding loans.

There has been significant amount of talk this past week that General Growth Properties (GGP), the giant shopping mall REIT, could be on the chopping block. GGP’s local San Francisco Bay Area assets include the Stonestown Galleria in San Francisco, NewPark Mall in Newark, and Eastridge Mall in San Jose.

The REIT also owns a series of what can be considered trophy malls, including Ala Moana in Honolulu, Hawaii, Pioneer Place in Portland, OR, and Water Tower Place in Chicago, IL. Ala Moana Center alone is probably worth north of $1B dollars. It is one of the premiere shopping centers in the United States.

The mall owner has approximately $1.7B worth of loans coming due in the coming six months as part of its total debt of over $27B. It is seeking ways to raise capital and yesterday announced a suspension of its dividend.

I suspect that unless the company is able to secure additional financing to pay its debts on time, the company likely will be forced into a situation where it takes on foreign JV partners on many of its properties as a first step. If that fails, it might have to enter into outright sales of its properties at significant discounts.

Though it seems a final deal has yet to be finalized, it seems JP Morgan Chase will be suitor for Washington Mutual, or at least a portion of its operation according to multiple reports. Washington Mutual put itself up for auction last week, and a number of banks came forth to evaluate it, including Citigroup, HSBC, and JP Morgan Chase.

Washington Mutual, despite being mired in bad debt and writedowns still is a bank with a strong and well-located branch network. It was clear that to anybody looking to “head west” and establish themselves in key markets like California, Washington Mutual would be a likely target. What exactly Chase will be acquiring will remain to be seem, but it is very likely that the retail branch network, at least in key west coast markets, will be a part of that deal.

Both Neiman Marcus and Bloomingdale’s have confirmed plans to open stores at Westfield Valley Fair in Santa Clara in 2011.

Bloomingdale’s will be constructing a three-level 150,000 square foot store and Neiman Marcus will be opening a two-level, 120,000 square foot store. Both are expected to open in time for the 2011 Christmas shopping season.

We previously discussed Valley Fair’s expansion plans last month. The Neiman Marcus announcement also comes shortly after the announcement of a 100,000 square foot store at Macerich’s Broadway Plaza project in Walnut Creek. You can read about our previous post on that topic here.

Westfield Valley Fair, the 1.5 million square feet mall on the border of Santa Clara and San Jose will break ground on a 500,000 square foot expansion in January. At $809 per square foot excluding anchors, the mall is one of the best performing shopping centers in the United States ringing up sales almost twice as high as the national average. The project, which was acquired in the late nineties by Westfield is looking to make the following improvements over the next few years:

• New Safeway and Long’s Drugs (replacing the current older structures) at Winchester and Stevens Creek
• New Washington Mutual and Bank of America (replacing existing structures) at Winchester and Stevens Creek
• Existing parking on Stevens Creek Blvd. will be demolished and make room for new anchors, shop space, and an additional 3,000 spaces (some of hwich will be on Monroe Street).

The Mercury News is reporting rumours that Bloomingdale’s and Neiman Marcus will be new anchors to the center. I’m not sure about Neiman Marcus, but about two years ago I heard that Bloomingdale’s was not interested in renewing its lease at Stanford Shopping Center, giving credence to the rumour. Neiman Marcus just signed a lease for a 100,000 square foot store at Broadway Plaza in Walnut Creek.

Neiman Marcus has finalized the lease for its new 100,000 square feet store at Broadway Plaza in Walnut Creek. The store is expected to open as early as the first half of 2010. Broadway Plaza has been a historically strong retail center with average rents north of $750 per square foot.

The center is owned by the Macerich Company and Northwestern Mutual Life. The new store will be on the corner of South Main and Mount Diablo Blvd, and will be two storie.

The Business Journal is reporting that Regency Centers has acquired the 92,000 square feet Expo Design Center building in East Palo Alto. It has also entered into a lease with Sports Authority for 50,000 square feet, and is rumored to have Nordstrom Rack on lock for the remaining 40,000 SF or so.

This deal finally brings some activity to the Expo Design Store since Home Depot shut it about two years ago.