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Distressed Property for Sale in the Bay Area Retail Sector

January 8, 2010

A distressed property for sale by an owner in the Bay Area retail sector may turn into a great investment for another if one or all of five struggling retail centers in the area do not recover from their Chapter 22 bankruptcy filings.

The five retail center developers that sought bankruptcy protection in December last year because they can no longer bear their more than $39 million worth of debts were Saigon Village LLC, which runs a Vietnamese-themed shopping center in Fremont; Orchard Retail Newark, which operates Aspenwood Plaza in Newark; Santa Clara Square, which owns a 12-acre retail-focused mixed-use development; Sorrento Pavilion, owner of two retail buildings in the San Jose area; and San Carlos Plaza, which owns a retail building in San Jose.

In their bankruptcy filings, Saigon Village listed $18.5 million in debts and wrote $24 million as the value of its properties; Orchard Retail listed $4.7 million in debts and valued its retail center at $2.5 million; Santa Clara listed more than $10 million in total debts and another $13.5 million in mortgage loans; Sorrento listed $4.5 million in total debts and valued its retail property at $8 million; and San Carlos listed about $10 million in total debts and valued its property at $2.2 million.

Gary Hansen, a broker and co-owner of Orchard Retail that runs Aspenwood, said that the retail complex has become at risk of becoming a distressed property for sale largely because of the refusal of banks to lend money to retailers and restaurateurs who want to get involved in Aspenwood. In his frustration, he accused banks of hoarding the bailout money they received from taxpayers. Even developers with properties are not being entertained, according to him.

Hansen related that his firm has never been late in its mortgage payments to lender Westamerica Bank, but the bank classified its loan as nonperforming and demanded additional equity.

Greg Labarthe, one of the top executives of commercial brokerage Grubb & Ellis, said that the five buildings were part of the retail projects acquired in the first years of the decade which have struggled because of lack of shoppers and tenants.

Economist Jon Haveman, co-owner of Beacon Economics, said that the retail sector started to lose in 2008 and continued losing in 2009. He contended that the flow of distressed property for sale in the retail sector will continue this year because of the downturn.

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