Cupertino Square shopping center in default on $195M loan

The holder of a $195 million construction loan secured by Cupertino Square shopping center has filed a notice of loan default with Santa Clara County.

The move is the first step in a process by which lender Gramercy Capital Corp. could become owner of the 1.3 million-square-foot mall, previously known as Vallco Shopping Center. If such an event were to occur, it would be the second time in six years that the center had gone back to a lender after a borrower lost control.

But a Los Angeles attorney representing Cupertino Square said May 8 that he believed there was no chance the center would become the property of Gramercy Warehouse Funding I, a division of Gramercy Capital.

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"It's total gamesmanship. Why they would file a notice of default is just punitive and intended to generate the exact response it has had -- your calling me," said James R. Evans, an attorney with Fulbright & Jaworski LLP.

Gramercy also has filed a countersuit to an April 2 complaint filed against it by Cupertino Square, Evans said. Gramercy is also seeking to take the shopping center from its current owners in that lawsuit, he said.

No sale date for the center can be set for three months after the May 5 filing of the default notice, according to the notice itself. Cupertino Square owed Gramercy $1.25 million as of April 17 and had unpaid taxes of more than $283,000 as of April 10.

A call to Gramercy Warehouse Funding was not returned.

Gramercy is the same lender that recently took back San Jose's Hotel Montgomery from DivcoWest Properties, which told investors that it had been unable to operate the property profitably over the previous seven years.

Manhattan-based Gramercy Capital is a commercial real estate finance and investment company. Gramercy Finance originates and buys loans and preferred equity and invests in commercial mortgage backed securities and other securities. Gramercy Realty targets commercial properties leased primarily to financial institutions and affiliated owners in the United States.

On April 16, the company reported first-quarter net income available to common shareholders of $23.1 million, up from $17 million in the same period a year earlier. During the quarter, the company increased its loan-loss provisions by $8 million to $16.7 million, according to public record.