Contact: FOR IMMEDIATE RELEASE
John Pilger October 26, 2006
Adam Levermore-Rich Release # 10 13
SUNNYVALE DOWNTOWN DEVELOPER
SEEKS PROPERTY TRANSFER
SUNNYVALE, Calif. – Fourth Quarter Properties, the developer of the Sunnyvale Town
Center Mall redevelopment project, has 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.
The current developer has identified the proposed buyer as RREEF, a major worldwide
financial organization. Peter Pau, principal in Sand Hill Properties, a local developer
with many completed projects in the region, has been named as one of RREEF’s
partners in the project.
Fourth Quarter Properties began work on the project in 2005, tearing down a parking
structure on the west side of the property adjacent to Mathilda Avenue. When the
developer failed to restart the project in January 2006, Sunnyvale City Council became
increasingly impatient with the delays and missed deadlines. In March, the RDA notified
Fourth Quarter they were in breach of the DDOPA – the Disposition and Development
and Owner Participation Agreement. The developer then had the option of curing the
breach, transferring the property to a new developer or working with the RDA to allow
the RDA to purchase the property.
Following the developer’s continued failure to cure the breach of the DDOPA, the RDA
issued a notice of their intent to directly acquire the property in order to be able to select
a new developer.
On Thursday (October 26), the RDA received formal notice from Fourth Quarter that
they want to transfer the property. Under terms of the DDOPA, the City must approve
any such transfer before it can take place. The approval will be based, in part, on a due
diligence process conducted by City staff to examine the proposed buyer’s track record
of performance, such as the quality of work they have done in the past, whether
previous projects were completed on schedule, how well they worked with other
government agencies, their financial ability to complete the project and how they make
decisions. Staff will also explore the proposed new developer’s commitment to the City
of Sunnyvale and their capability and commitment to completing the project on
There are several advantages to a transfer of the property as compared to a City
purchase. Chief among them is the ability to finish the redevelopment more quickly. The
City’s due diligence review will take about 45 days. Staff will then provide a report to the
RDA and the RDA will decide – in a public meeting – whether they will grant approval to
the transfer. If approved, it is expected that construction work could begin within about
nine months after the approval is given. Actual construction – razing the old mall
building while retaining the Macys and Target stores and then constructing the new
traditional downtown – should be completed within 18 – 24 months of construction time.
A major element of the transfer is that the DDOPA will transfer with the property,
meaning a new DDOPA will not need to be negotiated. The DDOPA, among other
things, establishes the relationship between the RDA and the developer and sets the
City’s control over the project as well as the real estate tax advantages granted to the
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If the transfer is approved, the City will hold at least one additional public meeting to
allow for comments on the project. The expectation is the redevelopment project will
remain substantially the same as the existing plan, resulting in about 1 million square
feet of retail space, 250,000 square feet of commercial office space and 292 ownership
housing units. If the transfer is not approved, the requirements in the DDOPA would still
stand and the City could then pursue directly acquiring the property.
The City will continue to update the community on the progress of the redevelopment
project on its Web site at downtown.inSunnyvale.com and through the news media.
Sunnyvale Town Center Mall Redevelopment Project
Community Update – Frequently Asked Questions
Issue #3 October 26, 2006
This is the third in a series of public reports from the City of Sunnyvale on the downtown
1. What are the City’s goals for the redevelopment project?
The City’s goal is to complete the redevelopment project as quickly as possible,
keeping in mind that we want this to be a first-class project, worthy of being a
focal point in our City. As for the immediate next step, the City’s goal is to ensure
the developer is committed to the City and to the redevelopment project, and is
capable of building a quality project.
2. I thought the City was buying the downtown mall property. What
When Fourth Quarter Properties failed to cure their breach of the development
contract, there were three possible paths to follow. One was to cure the breach in
a manner acceptable to City Council and continue construction with the same
developer; another was for the City to acquire the land at fair market value and
proceed with development; and the third was for Fourth Quarter to transfer – or
sell – the property to another developer. Such a transfer may only be made with
the consent of the City, thus ensuring a new developer is acceptable to the City.
A transfer may be the fastest method to get the project built substantially to the
3. Who does Fourth Quarter want to sell the property to?
RREEF, a major worldwide financial organization, has been proposed as a
purchaser. Peter Pau, principal in Sand Hill Properties, a local developer with
many completed projects in the region, has been named as one of RREEF’s
partners in the project.
4. What are the City’s rights? What can the City do about the transfer?
Under the development contract – known as the Disposition and Development
and Owner Participation Agreement (DDOPA) – the City of Sunnyvale has the
right to reject any proposed transfer. This gives the City considerable power in
controlling who will ultimately acquire the land and develop the downtown project.
Under that same contract, if there were to be any future breach, the City
maintains its option to directly acquire the property and then sell it to a new
developer of the City’s sole choosing.
5. You said Council, sitting as the Redevelopment Agency (RDA) has directed
staff to “explore the transfer.” What does that mean?
The City’s goal is to turn the redevelopment area into an important hub in our
City. That means the project must be built to the highest standards of excellence.
The goal of staff’s due diligence process is to gain a factual profile of a
company’s expertise, capabilities, and showing an ability and commitment to
complete a project to the City’s standards. Staff is undertaking a “due diligence”
process, which means staff is investigating the past performance track record of
the proposed developer, including whether past projects have been completed
on time. The financial resources of the company as well as the experiences
others – including government agencies – have had in dealing with the proposed
developer will be reviewed. It also is very important to ascertain that the
proposed developer has a real commitment to Sunnyvale and to completing the
project on schedule.
6. Is the Council unanimous in their decision to direct staff to explore the
Council has absolutely indicated their unanimous support for revitalizing the
redevelopment project and getting this important “heart” of the City completed.
By law, those meetings dealing with negotiations to buy land or any possible
litigation matters may be discussed in closed session to protect the City’s
interests during litigation or negotiations. Since the direction to explore the
transfer was made in closed session, the actual voting record is not a matter of
public record. The approval or disapproval of the transfer will be made during
open public meetings, allowing the public to participate.
7. When Lehman first selected Forum Development Group as the downtown
developer, Forum was the only company to submit a proposal. Now you are
talking about only reviewing a single developer again. Is that a smart
The selection process is slightly different this time around. While we are
considering a development team Fourth Quarter requested, they have proposed
an established developer that is willing to build the project substantially as
currently approved and to accept significant financial penalties if the project is not
completed on time. Unlike the prior selection where the developer was selected
in the bankruptcy process – with City input but no real control – this time the City
has the ability to reject the proposed developer if it doesn't pass the stringent due
8. The City has implied that Forum has been difficult to work with – they
didn’t follow through. What assurance is there that RREEF won’t be just
more of the same?
There was a problem with Fourth Quarter Properties not following through on
promises they made during discussions on their breach of contract and there
have been generally poor communications. In part, that is what has taken us to
where we are in this process. Regardless of any possible shortcomings we may
have experienced with Fourth Quarter, RREEF and Peter Pau are different
companies with different management philosophies. The purpose of staff’s due
diligence will be to check RREEF’s and Peter Pau’s track records of performance
to determine what kind of companies they are. They will be judged on their own
merits, quite apart from Fourth Quarter.
9. Will the new developer get the same tax breaks as Forum did?
Yes. Since the DDOPA is transferred with the property to the new owner, the
business deal would remain the same, including the same advantages and the
same obligation to complete the project. One of the most common tools used by
redevelopment agencies is to provide property tax payments to developers for a
specific period of time to accept and complete a redevelopment project. It is
important to note that the property tax advantage given to the developer is based
on the increased value of the property due to completion of the project. Since the
benefit is based on the new increased value of the property, this is really new
money that is returned to the developer, and not a loss to the City or the
Redevelopment Agency, and is for a specified period of time.
10. Will anything in the DDOPA change?
The DDOPA will transfer to the new owner with the property. This is a negotiated
contract, so it is possible that some aspects of it may change. The City will most
likely add provisions for the developer to pay penalties if planning or construction
milestones are missed; this is an excellent tool for encouraging compliance with
the construction schedule.
11. Who are RREEF and Peter Pau?
RREEF is a global financial organization with sizable assets. They have provided
financing for many projects around the world. Peter Pau is the principal of San
Hill Properties, a local development and management firm that has completed
local projects. RREEF has been proposed as the purchaser of the
redevelopment property, with Peter Pau and others as partners. Part of the due
diligence process will be to explore the relationship between the two firms.
12. With a new developer, will they use the same plans? What will be different
from what we have heard about?
Whoever builds the redevelopment project will need to follow the Downtown
Specific Plan. The current design for the redevelopment project follows the Plan
requirements, as would any new design. Part of the negotiation with a new
developer could include some aspects of the design, but at this time, the core
elements of the project are expected to remain similar.
13. The mayor said with a new developer we could have a say in changing the
design. When can we do that?
We expect to hold at least one public meeting to discuss the project with our
community. Keeping in mind that any design for the redevelopment project must
comply with the Downtown Specific Plan, there probably is not a provision for
radical changes to the core design. As the City moves ahead with either
permitting a transfer or acquiring the property, the public will always have the
opportunity to address Council at any of their public meetings, whether the
project is on the agenda or not. The current design – the one the City has
expected Fourth Quarter to build – was the product of many meetings and
considerable public input, and reflects both the desires and needs of the City.
The addition of a new community meeting will help staff and the developer
ensure concerns and needs are being addressed.
14. Will any of the discussions be in open meetings, or will they all be in
The Redevelopment Agency will receive staff’s report and then make their
decision in an open session. As with all open Agency meetings, the public may
either attend the meeting in Council Chambers, or may watch it on KSUN-15, the
City’s government access cable television station on Comcast Cable.
15. When will the Council, sitting as the RDA, make their decision to approve
or disapprove the transfer?
We expect the due diligence process that staff is currently conducting will take
about 45 days to complete, which would be mid-December. Once it is completed,
a report will be presented to the Redevelopment Agency. The Agency will then
schedule a public hearing on the proposed transfer and a decision will be made
in open session as to whether or not the Agency will accept the proposed
16. Wouldn’t it be better for the City to just buy the property and get this
project under control and finished?
Maybe. Council has considered this, and it really depends on what the objective
is. A transfer would result in a faster resumption of work on the approved project,
which has some distinct advantages. On the other hand, if the City were to
acquire the property, it would give the Redevelopment Agency total control over
the selection of a new developer. This could result in a different timing for
completion of the redevelopment; it may also result in a different project being
built, which may or may not be better.
17. If RREEF buys the property, are they capable of creating a first-class
This is part of the due diligence review process. Staff will be looking at the
financial ability of the company to perform, as well as the quality of work they and
their partners have performed in the past. We will also review their business
dealings and relationships with different cities to see if there are any problems or
other issues that might help us make our decision. This information will be
carefully reviewed by the Redevelopment Agency prior to making a decision. The
City’s goal – as it has been from the start – is to make this a first-class
development of which we can all be proud.
18. One problem with Fourth Quarter, according to staff reports and the news
media, is that they had never completed a “lifestyle center” project. Are we
facing the same issue again?
The Sunnyvale Town Center Mall redevelopment project is not a “lifestyle center”
project. While it does include some elements common to lifestyle centers, this is
much more. When completed, the redevelopment area will include
1 million square feet of retail space, one-quarter of a million square feet of
commercial office space and 292 ownership housing units. The intent of this
project is to create a traditional downtown with shops, restaurants, offices, homes
… a gathering place for the community and an economic hub that is expected to
contribute about $2 million annually in sales tax revenues to the City. Rather than
seeking a lifestyle center developer, the due diligence will examine how the
companies have performed in the past, including whether past projects were
completed on schedule. The quality of their work in previous projects and their
level of commitment to Sunnyvale and to completion of our redevelopment
project are very important. Financial ability of the companies to perform is
another important area of examination. We will also review their business
dealings and relationships with different cities to see if there are any problems or
other issues that could influence the City’s decision. Peter Pau, a principal of
Sand Hill and one of RREEF’s proposed partners on the Sunnyvale Town Center
Mall redevelopment project, has developed the property on El Camino Real that
contains Best Buy and Pet Smart, and they are currently working on additional
development on adjacent property in Sunnyvale. Sand Hill also worked to update
Foster City’s Fashion Island into Bridgepoint Shopping Center. RREEF has
provided financing for many successfully completed projects
19. If RREEF buys the property and then fails to develop it, what will happen?
Will the City be protected?
Regardless of who is selected as the developer for the project, we expect the
new development contract will include provisions for penalties to the developer
for missing any critical milestones during the planning or construction phases of
the project. The assurances come from performing a thorough due diligence
inspection, then backing the selection up with a firm development contract. The
City will also retain the ability to purchase the property if the developer defaults.
20. Is Forum going to make a profit from the sale? I think this is what they
wanted to do from the start – stall the project until values went up, then sell
it for a profit. All at a cost to the City.
If Fourth Quarter Properties transfers the property, that will be a private sale
between Fourth Quarter and the new developer, and will be at a price negotiated
between those two parties. Whatever increase in value the land may have had
since Fourth Quarter Properties purchased it will be at least partially offset by the
high cost Fourth Quarter has had to pay for their loans and taxes while they have
held the property. Finally, Fourth Quarter would lose any future income they
might have derived from a completed project. This is, after all, a private business
deal by Fourth Quarter, the property owner. If there is a transfer of the property,
then the DDOPA will transfer with the property, keeping the same business
elements in place between the new developer and the Redevelopment Agency.
21. Will Macy’s and Target have to approve the transfer?
No, neither Macy’s nor Target are required to approve a transfer of ownership.
But as property owners in the project area, Macy’s and Target each have a voice
on how the property is redeveloped and what can be built on the site.
22. When will construction start?
This depends on whether the City acquires the property or if Fourth Quarter
transfers it. A transfer provides the quickest path to completion with the likelihood
that construction could begin about nine months after the transfer takes place
and the redevelopment project being completed about 18 – 24 months later. If
the City acquires the property, it would take an estimated 15 – 18 months before
construction would begin, followed by an 18 – 24 month construction period.
23. When will the new downtown open?
The City will seek an aggressive construction schedule with the developer, with
the goal of completing a first-class project as quickly as possible. The opening
date will, of course, depend on when the new developer actually acquires the
property. Construction could begin within about nine months after a transfer, and
most estimates are that from the start of construction, the redevelopment project
could be completed and open within 18 – 24 months.
24. Sand Hill is a familiar name. Have they done anything in Sunnyvale before?
Sand Hill developed the El Camino Real site that includes Pet Smart and Best
Buy. They built the project City Council approved. Following construction, there
were concerns raised by some of the adjacent neighbors, including issues with
noise levels and the height of parking lot lights, among other items. The
developer worked with the residential neighbors to resolve outstanding issues
and reached compromises that left most people satisfied. A Sand Hill
representative recently addressed Council (October 10), accompanied by several
neighbors, to explain how their outreach with residents has resolved issues
related to another adjacent project on El Camino Real.
25. Didn’t Sand Hill buy Town and Country? Is it smart to have a single
developer responsible for all of the downtown area?
Independent of their apparent negotiations with RREEF and Fourth Quarter
Properties, Sand Hill purchased Town and Country in October 2005 and has
been negotiating with the City to purchase some of the streets that bisect that
project area. In keeping with the Downtown Specific Plan, Sand Hill has stated
they plan to create a mixed-use retail, commercial and residential environment
where Town and Country is now located. It is not unusual – and certainly not an
issue – to have a single developer building two projects within the same area of