Milpitas: Developer to transform McCarthy Ranch into Asian mall, hotel

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by  - The Torgan Group of Canada envisions knocking down four “underutilized” buildings totaling about 140,000 square feet at the center, located near the intersection of I-880 and Highway 237. In its place would rise a 12-story, 240-room hotel attached to a roughly 280,000-square-foot enclosed shopping mall.

City officials said the project would target the city’s strong Asian demographic. Torgan also built Pacific Mall in Ontario, a 250,000 square foot project that’s considered one of the most successful Asian malls in North America and is a major tourist draw.

“It would be a one of a kind destination point,”said Milpitas mayor Jose Esteves in an interview Friday. “It’s a different kind of major retail complex with a major hotel, which could really benefit from the 49ers stadium coming in.”

The project is notable for its enclosed design — a rarity these days, as developers aim for outdoor shopping experiences — and a commercial condominium business model.

Torgan representatives didn’t return calls. But a recent city filing from Steinberg Architects, which is working on the design, details the project in broad strokes.

“The new retail space will have an open interior with approximately 450 small commercial condominium shops laid out in a grid pattern generally for occupancy by small business owners,” it says. The project would also include a level of underground parking. A hotel operator was not identified.

“They’ve been meeting with us about the possibilities, but we never had a handle on the plans,” said Sheldon Ah Sing, senior planner for the city of Milpitas. “Now they’ve submitted some plans.”

McCarthy Ranch, built in 1995, currently has a gross leasable area of around 435,000 square feet, making it the 25th largest shopping center in Silicon Valley. Torgan, a major landlord in the Greater Toronto and Ontario, Canada area, picked up a chunk of the center on the west side of Ranch Drive in March 2012. It did not acquire the properties on the east of Ranch Drive, including the Walmart store and several restaurant pads.

The center has struggled for years with high vacancy, said Bob Berndt, a senior vice president with SRS Real Estate Partners who is active in the area.

“It hasn’t done well,” he said. “It doesn’t have a great trade area, and it doesn’t have anything you can’t get in Fremont or San Jose,” he said.

Still, Berndt said the high-profile freeway visibility and a new format could give the new development proposal a shot.

“Other Asian-themed marketplaces in that area have all been successful,” he said. “It’s got a chance to work.”

John Luk, the managing director for GD Commercial Real Estate, agreed. He is the listing broker on Lido Faire Shopping Center in Newark, which has successfully courted Asian tenants. “Milpitas is over 60 percent Asian, and Fremont is more than 50 percent,” he said.

Targeting a niche is also one of the few growth options for retail centers these days, since many of the traditional box tenants — such as Best Buy, Office Max and Office Depot — are in retrenchment mode.

“The big boxes, typically, some of those guys want to downsize,” Luk said.

Esteves said he understood the Torgan Group was ready to build the project once it received city clearance, and could break ground early next year.

“They put in big money to purchase it, and my impression is they have all the money lined up (to build),” he said. “They are well-funded.”

The project is part of growing development activity occurring in Milpitas as the Bay Area Rapid Transit extension project continues to progress, with the first stop at Montague Expressway and Capitol Avenue under construction. Estevez said more than 3,000 residential units are in the pipeline, many of them near the planned BART stop, as part of a transit village development boom.

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