At a courthouse auction Wednesday, Wells Fargo bank legally took possession of the Downtown property from the prior developer that was unable to complete the Project due to the 2008 financial crisis. The bank “credit bid” the $108 million that the bank was owed as part of its outstanding loan.
This is huge, and it’s great news for us, and it bears some explanation, because it’s complicated. The bank, receiver, and the City were previously going through a Receiver’s sale process, where the previous owner (RREEF + Peter Pau) just transferred the property over to a new development group approved by the City, with an updated development agreement. So we were all set for the transfer to happen, probably with a big announcement, back at the end of May.
But shortly before that was going to happen, Peter Pau filed a lawsuit, saying that the process was improper, that RREEF didn’t have standing to make that deal, and that Peter should have had a shot to bid on the property at a courthouse foreclosure auction. And even though receiver’s sales like this have been widely used in California, the court wanted additional litigation to work through the issues. That has blocked the sale for the past two months, and it could have delayed things much longer, depending on the litigation. And the City was obviously unhappy with the notion of delays, because the new developer was ready to go after a receiver’s sale.
So to resolve the legal issues of control and move the process forward, the receiver and the bank simply did a formal foreclosure process Wednesday. And Wells Fargo was the only bidder. I haven’t heard any legal interpretation of this (and I couldn’t tell you if I did), but my understanding is that Wednesday’s action gives control of the project to the bank.
This is a big, big win for Sunnyvale. Now it’s just a matter of getting the project done, and we’ll be discussing next steps with the bank in the next several days.
The “hotness” of the property was explained to me this way. Now that the economy is rebounding, developers are looking for viable projects to build. Ours is one of the only major projects in the country with a lot of the work already done, meaning that any developer who buys it will be well ahead of the pack in attracting tenants, since the site doesn’t require demolition and a development agreement and a lot of other procedural stuff – it’s all been done already. It has a lot of the construction already finished, with “anchor” tenants already in place (Macy’s, Target, Nokia). That’s why there were so many interested parties and so many bidders in the Receiver’s sale earlier in the year.