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May 21, 2014

Cupertino's ghost mall, Vallco, may be best hope for a real downtown - despite vexing lawsuit

Silicon Valley Business Journal

Nathan Donato-Weinstein

When Cupertino's struggling Vallco Shopping Mall went up for sale in the summer of 2011, it drew interest from the likes of Apple Inc. and a rock-star list of Silicon Valley real estate developers.

But three years later, Vallco still hasn't sold, its retail corridors remain largely empty, and its owners are mired in a legal dispute with one of the brokers they hired to market the property.

The legal woes are just the latest sign of trouble for Vallco, one of Silicon Valley's most puzzling real estate oddities: Despite its historical location in the heart of prosperous Apple country, it is poorly leased, with most of its first floor boarded up.

Vallco's problems run deep. In court documents filed over the past year and not previously reported, a picture emerges of a confused sales process - including questions over who exactly was authorized to sell the mall - and owners who may not have been familiar with basic U.S. business practices.

"It's kind of a hot mess over there," one retail real estate broker said, explaining why he does not show the property to tenants.

?The situation has real implications for Cupertino, which is often said to lack a real city center.

City officials have spent years examining redevelopment options for Vallco, and Mayor Gilbert Wong regularly talks about revitalizing the project to create a new downtown. He's championing an update to Cupertino's general plan that could put more land-use options in play, such as allowing office and residential on what is now a pure retail zone.

?"You might have to blow up the mall and think of something more creative," he said.

What's more, the city's Apple-propelled economic strength is only gaining steam. Just north of Vallco, the iPhone maker is under construction on its headline-grabbing, doughnut-shaped "Spaceship" campus that will house more than 14,000 workers when complete in December 2016.

"I think there's a small window of opportunity right now to do something with the mall, and if we miss this window we might have to wait another decade," Wong said. "It will probably take new ownership to reinvent it."

Any reinvention will have to overcome history. The mall's closed-in style reflects its provenance as a creature born in 1976, when it drew swarms of shoppers and teenagers looking for something to do. And the fractured ownership structure of the land under the mall will also complicate any giant leap forward.

"Most recently, it came to our attention that another brokerage firm, Kidder Mathews, may now be the sole representative for the owner of Vallco Mall," wrote Tim Stanley, senior vice president of development for Irvine Company in Northern California, in April to the Marcus brokers, with whom he had already signed a confidentiality agreement regarding Vallco.

For the full story, go to Silicon Valley Business Journal.

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