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SAN JOSE, CA-Westfield has shelved plans for a 500,000-square-foot expansion of the Valley Fair Mall. The news comes eight months after it announced the expansion and one month after Stanford University pulled its application for a major expansion of Stanford Shopping Center, which competes for tenants with the nearby Valley Fair and Santana Row retail centers. All three Silicon Valley shopping destinations have been among the top performing malls in the nation.

In September, Westfield, the world’s largest publicly held retail group, announced a 500,000-square-foot expansion of the 1.5 million-square-foot Valley Fair mall. The plan included Bloomingdale’s and Neiman Marcus joining existing anchors Macy’s and Nordstrom in time for the 2011 holiday shopping season, making it one of a select few with four top-tier department store anchors. Stanford Shopping Center, which last month pulled its application to add a 240-room hotel and 240,000 square feet of retail, already has those four department stores as anchors.

Work on Valley Fair was scheduled to get underway in January. It did not, presumably because the economy tanked promptly after the company’s September announcement, putting downward pressure on occupancy, sales and preleasing activity, which in turn put the brakes on development.

Valley Fair is 50-50 joint venture of the Australia-based Westfield Group and JPMorgan Fleming Asset Management on behalf of the Strategic Property Fund, a co-mingled pension trust fund. As of two weeks ago, when Australia-based Westfield released its first quarter report, it listed seven current development projects, four of them in California; Valley Fair, last renovated in 2002, was not among them.

The expansion plan for Valley Fair, assuming it is eventually implemented, calls for a three-level, 150,000 square-foot Bloomingdale’s and a two-level, 120,000-square-foot Neiman Marcus to be added to the south side of the mall, between two existing Macy’s stores. The remainder of the addition would be home to 70 new retailers and several new restaurants, taking the mall to 2 million square feet and 340 stores. The plan also calls for an additional 3,000 parking stalls.

In 2007, Valley Fair was listed as one of the top malls in the US with specialty store sales averaging $830 per square foot, according to the International Council of Shopping Centers, which is holding its annual deal-making convention in Las Vegas this week. It was the No. 2 mall in Westfield’s US chain at the time, behind only Century City, a much smaller mall (875,000 square feet) with average specialty store sales of $896 per square foot, according to Westfield.

In 2008, Westfield reported specialty store sales per square foot at Valley Fair fell 6% to $781 per square foot, while sales at Century City fell 4.6% to $855 per square foot. Comparables for the first quarter of 2009 were not immediately available, but specialty store sales at all Westfield’s US malls in the first quarter were down 3.2% from the last three months of 2008 and down 8.4% from the first three months of 2008. Westfield’s average per square foot sales nationwide is currently in the low $400 range.

All of Westfield’s current California projects have already broken ground and have either been completed earlier this year, such as the $120-million expansion of the Promenade in Arcadia, CA, or will be completed in the next 12 months, such as the $80-million expansion of the Galleria in Roseville, CA. A Westfield spokesperson confirms that Valley Fair remains in the pre-development stage, which is all about preleasing and development approvals, the latter from both government and existing retailers. Westfield chairman Frank Lowy summed up it up at the company’s annual meeting earlier this month.

“Despite holding back on the start of many projects, we are continuing with our pre-development work so that these will be ready to go when the time is right,” he said.

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