All Eyes on Sunnyvale Town Center’s Sale Price and Next Chapter

Sunnyvale Town Center, J.P. Morgan, Bay Area, Sares Regis, Hunter Properties, Wells Fargo Bank, Menlo Park, Sand Hill Property Company

SV-TC

After a lively discussion in the Sunnyvale City Council chambers, the city’s elders voted to acknowledge that the proposed development team comprised of J.P. Morgan, Sares Regis and Hunter Properties has met criteria outlined by the council related to development experience and financial capacity to acquire the troubled development. This decision effectively gives the Sunnyvale Town Center’s owner, Wells Fargo Bank, the green light to engage into sales negotiations with the trio to purchase and develop the remainder of the Sunnyvale Town Center for as much as $550 million, according to estimates provided by the city’s documents.

The center is a mixed-use, transit oriented development that sits on six city blocks in the heart of Sunnyvale. It is an entitled site that at full build out would feature close to 1.7 million square feet of office, retail, residential and hotel development. Approximately 1.1 million square feet of that is either completed or partially completed.

[contextly_sidebar id=”ca3iHm0I4OXU6F1IbOw5pUI0YEoji7Nw”]The development of the 20-acre Town Center stalled when an earlier developer, a joint venture between the Menlo Park-based Sand Hill Property Company and Deutsche Asset Management’s RREEF, defaulted on a $109 million loan moving the project into foreclosure. Additional work on the center continued as the foreclosing bank’s court-appointed receiver worked to complete two office towers in 2010 and 2012 that are today occupied by Nokia and Apple. Wells Fargo had been wanting to sell the property for some time now, however, it had been prevented to do so because of ensuing legal action.

In late November, the bank had announced that it had found a potential buyer for the Town Center, a consortium comprised of Sares Regis Group of Northern California, Hunter Properties, Inc. and J.P. Morgan Asset Management. The City’s role was defined to evaluate the proposed team against criteria that are outlined in an existing development agreement between Wells Fargo and the former Redevelopment Agency (now the Successor Agency), and this week the city council, in a 4-3 decision, acknowledged that the new development team has met that criteria. One of those items was a third-party evaluation of the financial strength of the three companies, which passed with flying colors, according to MGO, an accounting firm hired to conduct the evaluation. J.P. Morgan’s JPMCB Strategic Property Fund, which would foot the largest portion of the acquisition cost, was found to contain 50 times the projected cost to acquire and complete the initial phases of the project. As of June 30th, 2015, that fund had net assets of $27.6 billion under management, estimating that cost to around $550 million.

“It’s hard for me to imagine a stronger set of applicants for this project. So, for those reasons I am going to be supporting the motion,” said council member Gustav Larsson, who was one of the four members that supported the motion to approve the buyers.

Added Vice Mayor Tara Martin-Milius, “It is wonderful to think about taking the next steps with this project finally. It’s been in limbo for a long time. I do enthusiastically support this motion.”

But others on the council did object to the proposal. Council member Pat Meyering expressed his concern that the entity that would be formed by these three has no experience in developing these types of projects, even though on their own each one sufficiently met all the criteria the city had outlined.

“We talk about the skin in the game. The amount of skin in the game that Sares Regis and Hunter [have] in this project is minuscule in regards to the size and depth and breadth of this project,” council member Jim Davis said.

He referred to the structure that the three organizations offered, which would be comprised of two entities, one 100 percent owned by J.P. Morgan that would own the office component of the development, and another that would have a 95 percent equity stake by J.P. Morgan and the rest divided by Hunter Properties and Sares Regis that would own the retail and residential components.

In the end, it was Mayor Griffith who cast the deciding vote. “I can see no reason to challenge this whatsoever, so I will be supporting this motion,” said Griffith, who also added, “I’m strongly encouraged by the fact that this is an all cash proposition. …That is one of the beautiful elements of this proposal. …The developers did try and make the point that by having no mortgage they have equity, which gives them a stake in the project, and which gives them extreme motivation to finish the project well.”

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