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HAYWARD, CA-The 336,000-square-foot former Mervyn’s headquarters here is expected to sell for a fraction of the $196 per square foot it garnered at the height of the market in 2007. The previous sale, to North 3 Holdings LLC, the current seller, was based on the strength of a 20-year, $25-million fully-net lease commitment from the department store chain. This time the property is being sold by the lender vacant, into a down market.

North 3 Holdings’ legal counsel, Michael S. Sackerman tells GlobeSt.com that North 3 Holdings kept current with the payments on its securitized debt on the property for six months after Mervyns filed for bankruptcy in mid-2008. It stopped paying on the debt when Mervyns successfully rejected its lease early this year in bankruptcy court. North 3 Holdings, which assumed a $41-million securitized loan serviced by Midland as part of its acquisition, then consented to the lender’s plan to appoint a receiver to sell the property without actually taking back ownership.

John Connolly, the receiver tells GlobeSt.com that the reason the secured lender isn’t taking back the property and selling it on its own is because it wants to avoid being liable for any heretofore unknown property deficiencies, such as any potential environmental issues, not that any have been discovered. “There are so many moving parts that the secured lender in this case has decided they want to stay out of the chain of title and avoid liability,” he says.

Located 15 miles south of Oakland at 22301 Foothill Blvd., near the confluence of interstates 238 and 580, the 8.8-acre property is a former department store that was converted into a four-story office building in 2001. It reportedly contains 1,100 workstations in plug-and-play condition as well as a cafeteria. Outside the building is surface parking for 327 vehicles and structured parking for an additional 720 vehicles. Holiday Fenoglio Fowler has the disposition assignment, which is being led by senior managing directors Gerry Rohm and Michael Leggett.

Connolly says his charge is to sell the property for as much as possible as quickly as possible. The property will be sold via a competitive bid marketing scenario wherein there will be a best and final round of offers, likely due late this month or early next month. He describes the site as “a tremendous, urban infill location with huge traffic counts in a mature market.” He expects offers to come from a range of potential buyers including companies that would utilize the space as is, those that would adaptively reuse it and those that would raze it in favor of something new. One local investment specialist familiar with the property tells GlobeSt.com he expects it will sell for “significantly less” than $100 per square foot.

“It’s a very, very tough asset,” Connolly says. “I think we are going to see offers that span the range.”

Note: A previous version of this story mistakenly said that both Mervyns and North 3 Holdings filed for bankruptcy protection when, in fact, only Mervyns filed for bankruptcy protection. GlobeSt.com regrets the error.

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