… And that's the end of the fairy tale: Prince Nokia came to Princess Downtown Sunnyvale, providing the city with new jobs, plus helping complete the long-unfinished office building that had annoyed Sunnyvale for years. And the prince and princess lived happily ever after ….
Oh, Gramps, I love that story! Tell it to me again.
It's past your bedtime, swee' pea, and it's even getting late for me….
I'll scream. You'll be in trouble with Grandma.
Oh you would, would you? Well, pipe down, here goes: It started in the Seventies, before your mother was born, in the City of Sunnyvale, currently a burg of 135,000 souls located, in its own words, in "the Heart of Silicon Valley."
Does Silicon Valley have a heart, Gramps?
I'm not sure, angel, but it certainly has a lot of jobs, with 118,000 people working here daily. So keep in mind the city's an established employment center.
So they don't need redevelopment, Gramps?
Oh no, every city needs redevelopment, sugar cookie. Sunnyvale has a single redevelopment project area, which is downtown Sunnyvale. For many years, the single largest project in the redevelopment area was Sunnyvale Town Center, a regional mall built in 1979 by the late, great Ernie Hahn.
Can we go visit the mall?
Well, not exactly, my green-eyed girl. The mall doesn't exist anymore. But let's not get ahead of ourselves. The agency helped the mall developer assemble about 34 acres in the city's sparsely developed downtown area. The redevelopment agency committed $16.8 million in tax allocation bonds to buy the property and demolish the existing on-site structures, plus another $22.3 million in lease revenue bonds to build an adjoining parking structure.
That was nice of the city.
That's what cities do for big money makers like Sunnyvale Town Center, which operated profitably for nearly two decades before the original partnership sold, in 1998, to American Mall Properties. The new owner--let's call him Suitor No. 1 to Princess Sunnyvale--had an expansion plan, including a public parking structure. After finishing the parking, however, the rest of the expansion came to grief early in the current decade, when American Mall Properties found itself beset with both a high vacancy rate in the mall and the bankruptcy of its lender, Finova.
That's sad, Gramps.
Real estate is not for the meek, little one. Anyway, a few years later, in 2002, San Diego National Bank--otherwise known as Suitor No. 2--bought the loan and served American Mall Properties with a default notice shortly after. Sunnyvale Town Center ended up in the hands of a receiver, and not for the last time. A little while later, AMP defaults on the Mello-Roos bonds (I guess you still have to pay your taxes even when your project is losing money.)
Rules are rules, honey cake. Anyway, the Mello Roos bond holders started to foreclose on the mall. Unsurprisingly, American Mall filed for bankruptcy protection shortly after that.
This is a long story, Gramps.
And it's not over, honeybun. In 2003, another investor, this time an affiliate of Lehman Brothers--Yes, Suitor No. 3--bought the bank loan. The mall property was now shuttered and an adjoining parking structure declared unsafe by city officials. The city put out a request from proposals for a master developer from the various landowners in the mall area. Lehman Brothers--
Oh. That's a scary story! Don‘t tell me that one again!
Don't worry: this happened way before all that.
Anyway, Lehman's partner was a Georgia-based developer, Forum Development Group, and together they put forward a proposal to demolish both the mall and the dilapidated parking deck. To replace the mall, Lehman-Forum proposed a mixed-use center with 500,000 square feet of retail, 292 residential units and 275,000 square feet of office space, plus 5,651 parking spaces. They also asked to extend public streets through the property--a worthwhile move to integrate the former mall property back into the downtown street grid.
In return, the city agreed to pay for the demolition of the old parking structure, while also agreeing to give the developer up to $4.05 million annually in tax increment generated by the project.
Oh, I love happy endings!
Not quite yet, darling. Lehman-Forum was unable to get financing for the project by a December 2004 deadline. Lehman bought out Forum (we're not done with them, however) and asked the city to push the deadline back to May 2005. As master developer, Lehman solicited proposals from developers, including Forum, and in April 2005, Lehman sold the entire mess back to Stanley Thomas, the principal owner of Forum.
I think I'm getting sleepy.
Forum went to work on the expansion plans later the same year, tearing down the old parking structure, but was late getting started on construction. The city told Forum that the latter was in breach of its agreement. By 2006, the city told the developer that it intended to exercise its right, under the redevelopment agreement, to buy back the mall and find yet another developer. "No, no!" said the developer. "Let me find a new buyer!"
Gramps, why didn't the city just blow up the mall with dynamite and make it into a pumpkin patch?
Well, that's a good question, sweetheart. By 2007, Forum sold the property to a partnership between RREEF Properties and Sand Hill Properties--Suitor No. 4, let‘s call them--who wanted to build the earlier project, while adding a hotel and a grocery store. Fine, why not, said the city, "Just build something!"
So Sand Hill and RREEF built the beginnings of the project, including three office buildings, which were about half finished in 2009. At that point, the latest developers announced a slowdown as they sought a new round of financing. They were sued that same year by their building contractor, who alleged that Sand Hill and RREEF were behind on payments. By October 2009, yet another receiver was in place.
Is this project occupied by evil spirits, Gramps?
I think so. The current receiver is Jerry Hunt, a principal of Quattro Realty. He marketed the half-finished office buildings to various parties. By some lucky stroke, Nokia, the Finnish cell-phone maker, decides in May 2010 to lease an entire five-story, 156,000-square-foot office building, and consolidate three of its Silicon Valley offices into downtown Sunnyvale. It was a stroke of rare luck for the city, because Sunnyvale's office buildings were competing with tons of vacant office space left over from the Tech Wreck nearly a decade ago.
Will Princess Downtown Sunnyvale be happy at last, gramps?
I hope so. With the lease signed, the bank gives the receiver the money to finish the building, and Nokia takes occupancy in December. Everybody's happy.
Why is this lease so surprising?
It's surprising because high tech companies in Silicon Valley often prefer suburban, stand-alone campuses, or sometimes tall office buildings. The company's decision to lease in downtown Sunnyvale might be seen as an expression of interest in urban things, such as places to walk during lunch, and maybe get your dry cleaning done, too. Plus, the project stands two blocks away from a Cal Train station, so it's transit-friendly.
So, Gramps, this means if I get good grades and go to the Wharton School and become a developer I can do the same thing when I grow up?
Don't count on it, sweetness. The Nokia lease was a stroke of extraordinary good fortune. Of course, in my opinion, many more high-tech firms would be happier in downtown areas, which, unlike suburban campuses--