Once a vibrant retail hub, the Sunnyvale Town Center has devolved into a 36-acre ghost town smack in the middle of the city. On Wednesday, its fate was supposed to change. The Town Center, which is in foreclosure, was to be auctioned off. But alas there were no bidders – not a one.
"I'm a little surprised nobody bid," said Vanessa Chow, a Milpitas contractor who was at the auction. Chow was looking to get business from the new owner.
Call it another casualty of a poor economy or just bad karma but the dozens of people who showed up outside the Santa Clara County Superior Courthouse left the auction scratching their heads wondering what went wrong. Wells Fargo, which took over the property, set the starting bid at $108.8 million. That was only a fraction of the $750 million the development was said to be worth just a few years ago.
But for those who’ve been following the project, this was just the latest chapter in the nearly decade long saga to revive Sunnyvale's downtown retail district.
Sunnyvale Town Center's history goes back to the 1970s, when the city’s redevelopment agency began its effort to convert the town center into a bustling hub of activity. A mall opened there in 1979 and ran successfully for almost twenty years.
In 1998, American Mall Properties took over the property and that’s when the troubles began. The new company tried to expand the mall but ran into financial problems. By 2002, the developer defaulted on its loans and eventually lost ownership of the project.
After that, the project went through a series of owners and developers including Lehman Brothers and Fourth Quarter Realty. Each group failed, defaulting on loans or breaching its contract in one way or another.
The last group to take a stab at the mammoth project was Downtown Sunnyvale Mixed Use LLC. The corporation was created by Sand Hill Property Company, a San Mateo-based developer, and RREEF, a global financing organization. The corporation took the job in 2007.
The principal at Sand Hill Property is Peter Pau. The local business press quoted real estate professionals saying that if anyone could get the job done, it was Pau. By the time Sand Hill took over the property, the old mall was mostly shuttered. Pau’s group agreed to demolish much of the old structure and build a new, mixed-use development akin to San Jose's high-end residential and retail hub, Santana Row.
Hopes ran high and it was around this time that Leigh Odum opened a bookstore next to the Town Center.
"We thought we were moving into a vibrant downtown, with the expectation that the mall would go in," Odum said.
But then, part way through construction, Pau’s group lost its funding and defaulted on a $108.8 million loan. That was 2009 and the country was in the throes of the economic downturn. The property has been in receivership since then.
Sunnyvale's City Attorney David Kahn said that the city has identified a new consortium to take over the project. The group consists of Hines Interests, Starwood Capital and Madison Marquette.
But Pau sued to stop the property from being sold through recievership earlier this year and wanted the property to go to auction, said his attorney Ron Rossi. Pau's plan, it appears, was to buy back the property.
So in light of all this wrangling, many were surprised on Wednesday when neither Pau nor Hines, Starwood and Madison Marquette bid at the auction.
Last minute legal issues prevented the city-approved consortium from bidding, said city attorney Kahn, who could not elaborate. The city now expects the bank to transition the project to the new developer.
Not so fast, says Pau’s attorney. Sandhill plans to file suit asking that the foreclosure sale be set aside. Pau still wants to finish the project, said his attorney Rossi.
Meanwhile, retailers in downtown Sunnyvale are stuck with a gaping hole.
"Its like a sore thumb sticking out," said Kenny Lam, owner of the Bean Scene Cafe. The small coffee shop is situated on the newly-renovated Murphy Avenue just across from the Town Center project.
Lam says he's pretty sure that an open mall would drive much more traffic to his business.
"Anything they put there would be great," he said. “As long as they get it done."