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SAN FRANCISCO-The Owners of Cupertino Square, formerly Vallco Mall, the largest indoor mall in Cupertino, CA, have filed for protection from creditors under Chapter 11 of the US Bankruptcy Code. The move wrests control of the 1.2 million-sf shopping center from lender Gramercy Capital Corp., which had taken control of the property in June through litigation and had threatened to sell the property at auction on Sept. 10.

A nearly $200-million loan taken out in 2006 to reposition the property is secured by the mall. In an August notice of default and sale Gramercy said the mall owners owed it and its lending partner, United Commercial Bank, approximately $121 million. Three months earlier, Gramercy filed a notice with the county claiming that the mall was in default to the tune of $1.6 million, according to published reports.

According to this week’s bankruptcy filing, which lists assets and liabilities between $100 million and $500 million, the mall’s ownership entered into a $195-million construction loan with Gramercy Warehouse Funding I LLC on August 24, 2006, in order to rehabilitate the mall, construct improvements to the common area and to build out new tenant spaces. In 2008, disputes arose between the owners and Gramercy and resulted in litigation in the Santa Clara Superior Court (case number 108CV109461). In connection with that action, a receiver was appointed on or about June 17 (over the owner’s objections) to operate the mall.

The bankruptcy filing has given control back to the owners as debtors in possession. The bankruptcy court has appointed its own receiver to oversee operations and granted an emergency order allowing the owners to make payroll, which was due today (Friday, Sept. 5). The ownership includes an affiliate of Orbit Resources LLC, which acquired an interest in the mall in September from Alan Wong, Emily Chen, and John Nguyen, who acquired the asset out of foreclosure in 2003 for roughly $78 million.

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