The implosion of Mervyn's has unleashed more fallout: A lender will put the defunct retailer's empty headquarters in Hayward on the auction block, possibly at one-fifth or less of its prior value.
LaSalle Bank, now owned by Bank of America, has placed the building into receivership in a move to wrest control of the 336,000-square-foot complex from its owner, Beverly Hills-based realty investor North 3 Holdings LLC.
Earlier this year, North 3 stopped making payments on a $45 million mortgage for the building. The lender responded with an Alameda County court lawsuit in July to seize control of the complex on Foothill Boulevard in downtown Hayward.
The vast, empty building is an emblem of the troubles that confront commercial real estate, falling property values and regional and national economic woes.
Yet the meltdown in the price of the building also presents an opportunity for savvy realty investors.
"Somebody is going to get a really good deal on this," said Joe Fabian, a senior vice president with Cornish & Carey, a commercial realty brokerage.
The nine-acre site, which consists of a four-story office building, a parking garage and a surface parking lot, was bought in March 2007 for $60 million. Just a few months later, in September 2007, North 3 Holdings bought the complex for $66 million, financing the deal with a $45 million loan.
That last transaction placed a value on the site of roughly $196 a square foot and represented one of the peaks for East Bay commercial property values in 2007.

But property analysts now believe the building could sell for around $10 million to $12 million, or maybe $30 to $35 a square foot.
"It is a tremendous asset," said John Connolly, the Larkspur based receiver who is handling the sale of the building. "It is a headquarters type facility that somebody could occupy tomorrow."
Holliday Fenoglio Fowler, the realty brokerage marketing the building, believes that the complex is a rare opportunity. "22301 Foothill Boulevard is being offered for sale at a fraction of replacement cost," said Gerry Rohm, a senior managing director with HFF.
When the owners bought the building in the fall of 2007, Mervyn's seemed to be in decent shape. The company generated sales of $2.1 billion in the fiscal year that ended in February 2008, although Mervyn's did lose $64 million.
Plus, the real estate investment itself looked good. Mervyn's had agreed to be a tenant for 20 years, which seemed to make the mortgage manageable. Court records show the loan payments were $266,000 a month.
Things soon soured for the property owners. In July 2008, Mervyn's filed for bankruptcy protection. In October 2008, the retailer announced it would liquidate its operations and hold going-out-of-business sales during the 2008 Christmas shopping season. The store doors were shut by January of this year and the headquarters site was largely vacated by late 2008.
Earlier this year, Mervyn's won a court order that enabled it to stop making payments on the lease. That ruling erased the rental income that North 3 was receiving and the property owner decided to stop making mortgage payments.
Several future uses could be in store for the building, depending on who buys it.
"With this economy, we have no idea who might step forward," Connolly said. "We could see a wide range of offers."
A new owner could be an organization that might use the building. A realty investor might have a tenant lined up, or might have deep enough pockets to "carry" the empty building while a rental deal emerges. Or the building could be bulldozed to make way for something brand-new.
"My hunch is that it will be an investor with the time, energy, financial strength and political clout to pull off a deal like that," Fabian said. The eventual occupant could be a government agency or big institutional organization.
Still, the receiver concedes that the building won't fetch anything close to the loan amount.
"We realize that values have crashed, and in today's marketplace it is worth a fraction of what it once was," Connolly said. "The market is very humbling right now. We think the street will tell us what the price is."