After years spent trying to win back control of Sunnyvale Town Center from Wells Fargo, Sand Hill Property Co. now owns a piece of it.
The Menlo Park-based development firm paid $40 million last week to acquire the Macy’s department store at 200 W. Washington Ave., according to interviews and public records. The 177,000-square-foot store, which was owned by the retailer, is one of only two Town Center parcels not controlled by Wells Fargo. Macy’s will continue to operate under a leaseback agreement with Sand Hill.
The deal is a dramatic twist in the long-running saga of Sunnyvale Town Center, a 36-acre mixed-use village that stopped construction during the recession and remains half built.
Wells Fargo foreclosed on most of the project in 2011 after Rreef Real Estate, Sand Hill’s financial partner in the development, allegedly walked away. Sand Hill has been working to regain ownership so it could finish the project ever since.
But two parcels remained independently owned and not involved in the foreclosure even though they are part of the center — the Target at 298 W. McKinley Ave., and Macy’s.
In a phone conversation on Monday, Sand Hill principal and founder Peter Pau said the deal “came up” in discussions with Macy’s after his company bought the Macy’s at Cupertino’s Vallco Shopping Mall last fall as part of a massive redevelopment proposal. Pau was amenable because he was selling an asset in the East Bay and wanted to find a property to buy in an “exchange” (a common tactic investors use to postpone capital gains taxes).
“They approached us,” he said of Macy’s. “It’s not like this was the game plan.”
Still, it’s impossible to ignore the potential far-reaching implications in the Town Center endgame. Macy’s enjoyed something called a “reciprocal easement agreement” (REA), which provides a say in major decisions affecting the center. For instance, Macy’s had to agree to the original redevelopment plans of Sunnyvale Town Center for it to move forward.
Terms of the sale weren’t completely clear this week, but the new owner of a property typically assumes the rights and obligations of the former owner —including REAs. That means Wells Fargo, or a potential suitor for the Town Center, would presumably need Sand Hill to sign off on any future changes there, increasing its bargaining power. (Wells Fargo has previously said it needs to change project approvals, reducing the amount of second-story commercial space, to increase its marketability.)
Pau, however, played down that new clout as a motivating factor in the deal.
“We’re not going to spend this much money just to play a leverage game,” he said, adding that other potential buyers also looked at the Macy’s property. “There’s too much to risk here. It’s primarily an investment.
“Downtown’s going to be great one day,” he added. “At least, I think so. So in this case, we think we have a good piece.”