History - City of Sunnyvale, California.

The Redevelopment Agency of the City of Sunnyvale was established pursuant to provisions of the community redevelopment laws of the State of California by a resolution of the City Council on November 19, 1957. The Agency oversees only one redevelopment project, the Central Core Redevelopment Project. The area of the project is 184 acres, representing one percent of the area of the city and half of one percent of the city's total assessed property value.

Under California law, redevelopment agencies are granted two powers not otherwise available to cities:

Power to acquire property for the purpose of resale to a private developer, utilizing eminent domain if necessary.
Tax increment financing, whereby all increases in property tax (including portions that would normally go to the county, school districts and special districts) flow to the redevelopment agency for the sole purpose of paying back funds borrowed for land acquisition and public infrastructure improvements.

The primary activity of the Agency since its formation was to assist in the development of the Town Center Mall. On March 1, 1978, the Agency entered into a Construction, Operation and Reciprocal Easement Agreement (REA) with Mall developer Sunnyvale Town Center Associates (a limited partnership formed by Ernest W. Hahn, Inc.), Macy & Co., and Montgomery Ward; in 1992, the REA was amended to include J.C. Penney. Among the obligations of the Agency through the REA was the responsibility to construct the parking deck along Mathilda Ave.

In 1977, $16,800,000 of tax allocation bonds were sold to fund the acquisition of property, relocation, demolition and public improvements. Sunnyvale Town Center Associates subsequently purchased a portion of the site from the Agency for $5,500,000, and that amount of bonds was defeased. The bonds were twice refinanced. The current outstanding loan balance is $7,960,000. The debt service is fully covered by current tax increment receipts; the debt is scheduled to be retired in 2023.

Also in 1977, two issues of lease revenue bonds totaling $22,300,000 were sold to construct the parking deck along Mathilda Avenue. These bonds were twice refinanced. The current outstanding loan balance is $14,965,000. The debt service is fully covered by the Agency's current tax increment receipts; the debt is scheduled to be retired in 2023.

Town Center Mall opened on September 26, 1979. After many years of apparently successful operation, Sunnyvale Town Center Associates decided to sell the property.

On July 9, 1998, American Mall Properties (AMP) became the new owner. AMP proposed to expand the Mall, by adding 205,000 square feet of new retail space in an outdoor appendage extending to Mathilda Avenue along the McKinley Avenue alignment (extended); it also proposed to add an entertainment component in the form of a 4000-seat, 20-screen movie theater.

On March 11, 1999, the City Council approved the expansion plans of AMP, and on December 3, 1999, the REA was amended to accommodate the AMP expansion plan. A major part of the amendment dealt with a land "swap" between the Agency and the developer, wherein the Agency deeded to the developer 5.33 acres of property, including certain properties fronting on Mathilda Avenue and approximately 1/3 of the parking deck centered roughly along the alignment of McKinley Avenue (extended); the developer deeded to the Agency 4.07 acres of property on the Sunnyvale Avenue side of the property where two new parking structures were planned, and paid the Agency $1,495,000, for the difference in the amount of land exchanged. (This amounted to approximately $27/sq.ft. for the 1.29 acre difference in the land exchange.)

In late 2002, American Mall Properties completed construction of the public parking structure at Sunnyvale and Iowa, funded by Mello Roos Community Facilities District Act Bonds. The debt service on these bonds is paid by the developer through a special property tax which is secured by a lien against the Mall property. Although AMP began some initial demolition of the parking deck and utility relocation, it was unable to proceed with implementation of the approved project due to difficulties in signing retail leases and bankruptcy of their primary lender, Finova. The Finova loan was purchased by San Diego National Bank, which, on May 14, 2002, recorded a Notice of Default against AMP. The default resulted in appointment by the court of a receiver, James Baron, who has since operated the Mall.

On June 30, 2002, AMP defaulted on a payment of the Mello Roos bonds and foreclosure proceedings were initiated on behalf of the bond holders.

On September 24, 2002, AMP filed for bankruptcy protection. AMP had been negotiating with Harvest Partners of Dallas, Texas, for Harvest to purchase and redevelop the Mall. That deal fell through, presumably because Harvest believed that it could acquire the property more cheaply and free and clear of liens if it purchased it through the bankruptcy sale.

In the meantime, on January 18, 2003, the J.C. Penney store closed and the property was purchased by Harvest. Subsequently, Lehman ALI, who had a lesser loan on the Mall, acquired the major loan from San Diego National Bank.

On June 2, 2003, the Chief Building Official ordered that the second level of the parking deck along Mathilda Avenue be closed for safety reasons, noting that the structure "is rapidly approaching the end of its useful, safe life". Attorneys for AMP immediately filed papers with the Agency, alleging that the Agency is responsible, under the REA and a related Parking Lease Agreement, for the repair and replacement of the parking structure. The Department of Public Works estimated that it would cost $15 million to replace the deck in kind (because the Agency owns only approximately 2/3 of the structure, its share of the replacement cost would be about $10 million). Such reconstruction, however, would be contrary to the desire of the developer and of the City to extend McKinley Avenue into Block 18; the more appropriate replacement of 2,400 parking spaces in an above ground structure would cost more than $30 million.

On December 2, 2003, in recognition of the many challenges facing the redevelopment of Block 18 (which challenges included multiple ownership of significant parcels within the block, the deteriorated condition of the parking deck, and the bankruptcy and closure of the Mall), the Agency designated all of Block 18 (except for the Bank of the West property) as a Master Development Area, and directed staff to solicit proposals from owners of property in the Master Development Area and from those who have contracts for purchase of property in the Area. Agency staff transmitted a Request for Proposal to all of the parties designated by the Agency: American Mall Properties, Federated Department Stores, Target Corporation, Harvest Partners, WHL Architects, and Forum Development Group.

One proposal was received, from Fourth Quarter Properties XLVIII, LLC, a development entity formed by Forum Development Group and Lehman ALI. After thorough review of the qualifications and experience of the members of this development entity, and their ability to implement a large and complex mixed-use project, the Agency unanimously acted on April 27, 2004, to select Fourth Quarter Properties as Master Developer for the subject site (RDA 04-004). (By the time the Master Developer was selected, Lehman ALI had acquired the WHL Architects Building and the former J.C. Penney building from Harvest, giving Fourth Quarter Properties control over all of the private parcels needed to implement its proposal.) An Exclusive Negotiating Rights Agreement was executed between the Agency and Fourth Quarter Properties, and staff was directed to negotiate a business agreement whereby the project could be successfully developed.

On August 17, 2004, the City Council approved the plan submitted by Fourth Quarter Properties for development of the Mall block
(RTC 04-295). The plan preserves independently-owned Macy's and Target, but demolishes the enclosed mall between the two department stores. It extends Murphy Avenue and McKinley Avenue through the block, and lines them with a half-million square feet of new shops, and a 16-screen cinema complex. Above the shops are 292 for-sale residential units and 275,000 square feet of office space. Central to the project is a new "Redwood Square" that preserves the six majestic redwood trees which have existed on the site since the old City Hall was constructed in the 1920s.

Also, on August 17, 2004, the Redevelopment Agency approved a business deal with Fourth Quarter Properties (RDA04-009). Known as a Disposition and Development and Owner Participation Agreement (DDOPA), the business deal requires that:

Fourth Quarter Properties

Demolish the Mall, former JC Penney building and the Mathilda Avenue parking deck
Construct and operate an open-air mixed-use development containing retail, office and residential uses
Build, maintain, repair and replace parking structures for a total of 5651 parking spaces, 1667 of which will be underground
Build, maintain, repair and replace public streets through the project, including extension of Murphy Avenue and McKinley Avenue
Build and maintain a "Redwood Square" of at least 0.8 acres

The Redevelopment Agency

Pay Fourth Quarter Properties $800,000 as its share of the demolition cost of the Mathilda Avenue parking deck (the Agency owns 2/3 of the deck and the Mall owns 1/3)
Make annual payments to Fourth Quarter Properties equal to the net new secured property tax generated by the development ("project tax increment") up to a cap of $4,050,000, and 50% of any amount over this cap

Fourth Quarter Properties and the Redevelopment Agency

Exchange land in approximately equal amounts such that the Agency will own the land under the public streets and public parking structures.

The agreement between the Redevelopment Agency and Fourth Quarter Properties sets forth specific dates, or milestones, which the developer must meet in proceeding with the project. When the Agency approved the business deal on August 17, 2004, the United States Bankruptcy Court was scheduled to confirm the plan of reorganization (bankruptcy "work out" plan) on October 4, 2004. However, the Court did not confirm the plan until November 12, 2004, primarily because the developer was unable to reach agreements until that date with Macy's and Target regarding the development and operation of the new project. This, together with protracted negotiations with their principal lender, made it impossible for Fourth Quarter to meet its first milestone, acquisition of the property by October 30, 2004. Therefore, on December 21, 2004, the Redevelopment Agency made minor revisions to the milestones in the agreement, including extending the date to acquire the property to December 31, 2004 (RDA 04-011). (RDA 04-011b)
(RDA 04-011c )

Early in January, 2005, the City was informed that Fourth Quarter Properties had failed to acquire the property by December 31, 2004, because they were unable to obtain satisfactory financing. Lehman Brothers exercised its rights in its agreement with Forum development Group, and took control of Fourth Quarter Properties.

On March 29, 2005, the Redevelopment Agency, at the request of Lehman, extended the date of property acquisition in its agreement with the developer from March 31, 2005 to May 31, 2005 (RDA 05-005) Lehman immediately began to solicit developers to assume responsibilities and rights under its agreement with the City to redevelop the Mall property.

Lehman received proposals from six developers, including Forum Development Group. In accordance with its agreement with the City, on February 15, 2005, Lehman submitted this list to the Redevelopment Agency for a determination of acceptability. On March 4, 2005, the Agency responded, finding four developers, including Forum Development Group, to be acceptable based upon their experience and financial strength. The new developer would not only purchase the land, but also the development plans which have been approved by City Council and the business deal which has been approved by the Redevelopment Agency.

On April 5, 2005, ownership of the Mall property and the adjacent properties owned by Lehman Brothers was transferred to Stanley Thomas, principal equity investor in Forum Development Group of Smyrna, Georgia. (RDA05-006). This action essentially completed the bankruptcy process and placed all of the property under the control of a single developer, the same developer who had been approved by the Redevelopment Agency on April 22, 2004.

Demolition of the Mathilda Avenue parking decks marks the long-awaited initiation of the redevelopment of Town Center Mall. Forum Development Group, which purchased the Mall out of bankruptcy in April, directed its demolition contractor to begin work in mid-August.

On June 21, 2005 City Council approved the construction mitigation program prepared by Forum for the demolition phase. The plan provides not only for truck routes, dust control and similar mitigation measures for the demolition work, but also for new directional signs to available parking and monthly meetings with Downtown merchants to reduce any negative impact of the redevelopment activity on Downtown businesses.

Demolition of the parking deck along Mathilda Avenue began in August 2005. By November 2005, Forum completed demolition of the parking deck and the building which once housed Chevy's Restaurant. A new temporary parking lot was built in their place south of Washington Ave, west of Macy's.

July 1, 2006
The redevelopment of the Town Center Mall site is one of the most significant projects in Sunnyvale. While the project got off to a great start last fall of 2005, work did not restart as planned as we moved into 2006, raising City Council’s concerns.

A number of questions were raised about the project. To help answer these, a special Community Update was created by the City to keep residents and businesses informed.

While there were rumors and some misinformation circulated in the community about the project, the Community Update detailed the City’s view of the project and underscored that the project had not changed in scope or nature since the development agreement was signed in 2005.

Since Council raised their concerns and put the developer on notice that they were in breach of their agreement with the City, there was communication between the developer and the City.

Community Update July 1, 2006 (pdf format)

July 27, 2006
Sunnyvale officials were cautiously optimistic following a series of communications with Fourth Quarter Properties, the developer responsible for the redevelopment of the former Sunnyvale Town Center mall site in downtown Sunnyvale.

The City received a formal response from the developer to the City’s breach-of-contract notice sent earlier in the year. That response, along with subsequent contacts between the City and the developer, resulted in the developer stating they would drop their request to deviate from the original plans by adding a hotel and 200 additional housing units. The developer said they intended to complete the project with essentially the same mix of uses as called for in the original development agreement: 292 housing units, a quarter-million square feet of commercial office space and about 1 million square feet of retail space, which included the existing Target and Macy’s stores.

Sunnyvale City Council met in closed session on July 26, 2006 to review the developer’s response.

“It appears Fourth Quarter Properties will work to get this redevelopment project completed,” said Sunnyvale Mayor Ron Swegles. “We still need to have further discussions with the developer to receive their new construction schedule and to establish consequences if the schedule isn’t met. The fact they have indicated a willingness to build according to the original development agreement makes us cautiously optimistic the project will be completed, to the great benefit of all of us who live or work in Sunnyvale.”

Council received a presentation by the developer explaining proposed minor enhancements to the project, a revised construction schedule and other issues related to restarting the project."

September 15, 2006
The Redevelopment Agency (RDA) notified Fourth Quarter Properties, the developer on the Sunnyvale Town Center redevelopment project, that the City intended to exercise an option to purchase the mall property directly. If the purchase was completed, it would enable the City to seek a new developer to complete the redevelopment work.

The option to purchase the property is granted by the development agreement signed by the developer and the RDA based on the uncured breach of the agreement. The RDA notified the developer that the developer was in breach of several contractual requirements in March 2006.

City Council held several closed sessions to review the options open to the City, and the city attorney was in communications with the developer.

October 10, 2006
Sunnyvale Downtown Developer Seeks Property Transfer
Fourth Quarter Properties, the developer of the Sunnyvale Town Center Mall redevelopment project, asked the City of Sunnyvale for approval to transfer the property. If approved by the City Council sitting as the Redevelopment Agency (RDA), it would mean a new developer would restart the project that will recreate a traditional downtown on the 34-acre site.

For entire release please click here (pdf)

December 19, 2006
On December 12, 2006 the Sunnyvale Redevelopment Agency (RDA) voted to give preliminary approval to a requested transfer of the Sunnyvale Town Center redevelopment project. The vote took place at the RDA’s Tuesday (December 12) meeting.

With the affirmative vote, Fourth Quarter Properties would be able to continue negotiations to transfer the property to RREEF, a global financial organization, and their partner, Sand Hill Properties. Fourth Quarter, which began demolition work on the redevelopment project in 2005, was found in breach of the development agreement by the RDA in early 2006. In late summer, the City notified Fourth Quarter that they would exercise an agreement option to directly acquire the property, the first step in an effort to bring in a new developer.

The development agreement grants Fourth Quarter the right to sell the development to another developer, but only with the permission of the RDA. Once REEF and Sand Hill were identified as potential developers, City staff began a due diligence inspection of both organizations, resulting in a report to the RDA with a recommendation to give preliminary approval to the requested transfer.

January 22, 2007
Sunnyvale to hold second Town Center redevelopment outreach meeting
More than 80 community members attended a community outreach meeting on Saturday, January 20, and the City of Sunnyvale held a second outreach effort Wednesday, January 24. The public meetings were designed to inform the community about the current status of the Sunnyvale Town Center redevelopment project.

Following presentations by City staff and the proposed new developer, community members had the opportunity to ask staff wide-ranging questions about the project.

In December 2006, City Council granted preliminary approval to a request from Fourth Quarter to sell the project to a new development team of RREEF and Sand Hill Properties. The City’s expectation was that with a transfer, a new developer could restart work at the downtown site later this year.

The outreach meetings were informational in nature, and included presentations by the City and an opportunity to meet the proposed new developer. This was an opportunity to learn about the next steps in this important project in the heart of our City.

February 7, 2007
SUNNYVALE APPROVES DOWNTOWN DEVELOPMENT PLAN
Unanimous vote will allow project sale, construction restart

By a unanimous vote, Sunnyvale City Council and Redevelopment Agency (RDA) approved a series of motions that will allow the partnership of RREEF and Sand Hill Properties to purchase the mostly-shuttered Sunnyvale Town Center and begin site redevelopment. While the central mall buildings have been closed for some time, independently-owned Macys and Target have remained open for business. The actions were taken at the Council and RDA’s regular meeting on Tuesday, February 6.

“We have taken a giant step forward this evening,” said Sunnyvale Mayor Otto Lee, following the meeting. “RREEF and Sand Hill, working with City staff, have brought us a project that both meets the requirements of our Downtown Specific Plan, yet moves well ahead of the plan proposed by the previous developer. This is an exciting project that will move us closer to the vibrant downtown Sunnyvale wants and deserves. I am very pleased my fellow Councilmembers saw fit to unanimously endorse this key development.”

The project came to a halt in early 2006 when developer Fourth Quarter Properties ceased work on the site after razing a parking garage, the first step in the demolition work. The City found Fourth Quarter in breach of their contract and, late last year, began to move to take over the project. That’s when Fourth Quarter proposed selling the project to a joint venture between RREEF, a global financing organization, and local developer Sand Hill Properties.

In December 2006, RDA gave preliminary approval to the proposed transfer, but in order to complete the sale, Council had to approve several documents related to the proposed new project. A Special Development Permit for the site plan, design and use approvals for the construction of up to 1 million square feet of commercial space – including a multiplex movie theater – along with 275,000 square feet of office space and up to 292 housing units, was approved by a unanimous vote.

The RREEF/Sand Hill development team also asked Council for permission to file a request for a General Plan amendment that would allow construction of an onsite hotel. With another unanimous vote, the request was approved, paving the way for the developers to make the formal request for the plan amendment.

Perhaps the most significant action was the unanimous approval of the Amended and Restated Disposition, Development and Owner Participation Agreement, known as the ARDDOPA. This is the document that established much of the relationship between the developer and the RDA. Unlike the original DDOPA signed with Fourth Quarter, the ARDDOPA includes substantial penalties – ranging from $1,000 a day to more than $11,000 per day – for missed milestones during construction.

The final action at the meeting was another unanimous approval of the construction mitigation plan. Following both community meetings and specific mitigation meetings held in downtown to discuss mitigation needs, the required plan was submitted by the developer. The mitigation plan outlines procedures the developer will use during demolition and construction to minimize the impact of noise, dust, traffic and other project-related issues on homes and businesses near the redevelopment site.

March 21, 2007
PROGRESS SEEN ON TOWN CENTER REDEVELOPMENT PROJECT
With the sale of the Sunnyvale Town Center redevelopment project expected to soon take place, RREEF and Sand Hill Properties, the new development team, has wasted no time in getting the project restarted.

Sunnyvale City Council approved the sale by Fourth Quarter Properties to the new development team at Council’s February 6 meeting, signaling a reinvigoration of the stalled project. RREEF and Sand Hill Properties have participated in several community meetings to explain their project and answer questions about their companies.

The plan, which was originally approved three years ago, called for a total of about 1 million square feet of retail space, including the existing Target and Macy’s stores, more than a quarter-million square feet of commercial office space and 292 ownership homes. With changes in the marketplace, RREEF and Sand Hill Properties have determined the mix of elements should be modified from the original plan. Among the key elements they would like to change are the addition of a hotel with up to 200 rooms, addition of a grocery store, up to 40,000 square feet of new office space and a reduction by some 30,000 square feet in the amount of retail space. Target, which owns their own store on the southern side of the project, has announced they would like to tear down their existing store and build a new, larger store on the same site. The new store would follow Target’s current store design on a single-floor model placed over parking.

Since some of these changes would require a change in the City’s General Plan, RREEF and Sand Hill requested Council’s permission to submit a General Plan change. Council granted permission for the submittal and the requested change to the General Plan is tentatively scheduled to be reviewed by the Planning Commission April 16, prior to Council’s review which is now tentatively scheduled for May 1. The City determined that a new environmental impact report would not be needed for the modified plan, which has the effect of speeding up the approval process.

Under the proposed modified plan, the hotel would be built at the northeast corner of Murphy Avenue – once it is extended through the project area – and McKinley Avenue. The hotel would be on the second through fifth floors, with the lobby entrance at ground level. The proposed grocery store would be located on Mathilda Avenue, south of McKinley.

While RREEF and Sand Hill Properties have been working on their modified plans, they have moved quickly to take care of other projects requirements. Both the utility plan and the final map application have been submitted to the City, and the architectural and landscaping plans are expected to be submitted soon for the first phase of construction. The first phase includes the area between Mathilda Avenue and the mall structure, and between Washington and Iowa Avenues. RREEF and Sand Hill have not yet acquired the property from Fourth Quarter; but the land sale is expected to close soon. Once RREEF and Sand Hill own the property, the demolition of the old mall structure will begin, leaving both Macy’s and Target standing and open for business. The new developer will begin excavating for underground parking along Mathilda and trenching for the installation of on-site utilities at the same time demolition takes place.

Community Update - Winter 2007 (pdf)

Community Update - Frequently Asked Questions (pdf)

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