Vietnam Town Foreclosure?
Last week, East West Bank initiated the foreclosure process of Vietnam Town shopping mall on Story Road in San Jose. The currently half-finished retail mall is own by TWN Investments. The development was first announced with fanfare in 2002. The principal of TWN Investments, Tang Lap (middle of picture), presold the retail condonium development to buyers at $300/ square feet in 2002 and up to $500 /square foot in 2006. There were about 185 units for sell. The development was supposed to be completed 2007. Buyers were asked to deposit 1/3 of the money up front. The idea was to use the deposits as part of the equity for the construction loan.
Tang Lap claimed to have sold most of the units. However, in early 2007, somehow, he ran into finanical problem and could not paid his general contractor, Reeve-Knight Construction, and the interest payment on the construction loan from East West Bank. The value of the project dropped in 2007 and there was not enough equity to cover the loan since the money deposit in escrow was less than claimed. Thus, East West Bank in 2008 demanded more equity or they would not release additional money for construction.
After a year of construction delay, Tang Lap managed to convinced Ha Ly, a wealthy owner of Hayward Quartz, to invest $10 million into the project. Part of money was used to settle liens against the project as well as other debts. He then received construction loan from United Commercial Bank with guaranteed from Evetrust Bank and the project restarted in early 2009. However, UCB filed for bankruptcy in late 2009. The FDIC took over and sold UCB's assets to East West Bank. East West Bank is now the holder of the oustanding construction loan.
According to the article in Jan 22, 2010 by San Jose Business Journal -http://sanjose.bizjournals.com/sanjose/stories/2010/01/25/story5.html?q=vietnam%20town%20in%20san%20jose - East West Bank has refused to lend the additional money, $28 million, to finish part of the construction, unless more equity is put in.
According to buyers who had managed to get their deposits refunded last year since Tang Lap could not completed the construction as stipulated, they pulled out because the value of their retail condo units have decreased at least 50% purchased price. The San Jose Business Journal reported the value of the project has decreased from estimated $100 million in 2007 to now $40 million, a 60% loss in value.
Tang Lap is now scrambling to find investors from Vietnam to either invest or purchase the property outright. East West Bank has no interest in keeping the mall and is taking step for foreclosure sale. Tang Lap is the majority owner of Grand Century Mall on Story Road and couple years ago he purchased a Coldwell Banker franchise in Vietnam. He is well known within the Vietnamese-American community for his political support of California State Assemblyman Van Tran and San Jose Councilmember Madison Nguyen.
Like with Vallco Fashion Park in Cupertino, Tang Lap is trying to find investors in Vietnam to bail out his investment. Tang Lap was one of the original buyers of Vallco Fashion Park in 2003 for about $80 million by raising $18 million with Emily Chen and other Vietnamese-American investors. Ultimately, Vallco was forced into bankruptcy and was bought out by Tram Be, a wealthy Vietnamese businessman from Vietnam for $60 million in 2009.
Ha Ly and other investors are basically at the short-end of the foreclosure. The original buyers who did not get or ask for the refund of their deposit might be able to get some of their money back or none at all. There are people in Vietnam who have the money to buy the property out right from East West Bank. The asking price is circulated to be anywhere from $20 million to $30million. The potential owner of course has to put in another $25 to $30 million to finish the construction.
With the commercial market downturn and the overbuilt of retail shopping mall in San Jose, it would be difficult to lease 185 retail units for a narrow market segment not a lone selling them. Each unit right now is probably worth $150 - $175 per square feet at best. This put the value of the fully built out shopping mall at about $40 million. It would not be suprising to have East West Bank depart this unattractive property for $20 million.