Owners of Bay Area Mall File Chapter 11

The owners of the Cupertino Square mall in Cupertino, Calif., have filed for Chapter 11 in U.S. Bankruptcy Court for the Northern District of California to protect the mall from an impending foreclosure sale set for Sept. 10.

Representatives of owners Cupertino Square LLC and Vallco International Shopping Center LLC said in aSept. 3 memo to tenants that the filing was necessary to keep the mall open and to protect its assets.

The owners have been involved in a protracted legal battle with its chief lender, New York–based Gramercy Capital Corp. Earlier this year, they filed a lawsuit seeking enforceability of a construction loan agreement that called for Gramercy to finance certain tenant improvements. Gramercy reacted by filing a countersuit seeking receivership and then filed a notice of default seeking a foreclosure sale, claiming the mall’s owners owed it more than $1 million.

In the complaint, the lender alleged that Cupertino executives mismanaged construction, which resulted in added costs and delays.

“We have made every effort to work with our lender and have tried to resolve the leasing issues amicably before filing a lawsuit,” said Phil Liao, chief executive officer for Cupertino Square.“Unfortunately, the lingering effect of the legal challenges has hamstrung our effort to revitalize Cupertino Square and had us spending more time in different court systems than we would have liked. The Chapter 11 filing was a necessary and prudent step that allows us to operate our business without interruption as we seek to resolve all our pending legal challenges as well as to restructure our debt and other obligations in a controlled, court-supervised environment.”

The 1.3 million-square-foot shopping center, located about seven miles from San Jose, Calif., is anchored by Macy’s, JCPenney and Sears. Until last year it was known as Vallco Fashion Park. The mall opened in 1975 and was sold in 2005 to Bay Area developers John Nguyen, Alan Wong and Emily Chen, who undertook several renovation projects. Last year, they took on a controlling partner in Orbit Resources Inc.Robert McAllister