Wednesday, July 18, 2007

Block 37 - it just never ends

The star-crossed Block 37 saga goes on and on and on. According to the Tribune, the largest tenant in the new office portion of the building, Morningstar, is suing the previous developer, Mills Corp., over the size of its premises. Originally, the financial service firm planned to lease 211,000 square feet, but apparently with the building closer to completion the remeasurement of the building is indicating that the space will be something more like 237,000 square feet.

Premises measurement in a new development can be complicated. The typical standard is that of BOMA, the Building Owners and Management Association. There is virtually always a “load factor” calculated here, which is a multiplier that takes into account the tenant’s pro rata share of the common areas of the building. We’re talking more than 10% here, though.

I have not read the lease, so I have no idea what it says about the measurement or remeasurement of the premises. Nor do I have a clue about the lease negotiations, but a lease that size almost had to be heavily negotiated. There are ways to deal with this issue that you can include in the lease, such as capping the rentable area regardless of the actual final measurement, but they may not be very palatable to the landlord. My guess is perhaps that no one thought the numbers could be off that far, which is why the cause of action is, according to the story, for fraudulent misrepresentation, which is not easy to prove.

Is there good news? Morningstar will still be the anchor tenant and the project will be completed. This appears to be just a matter of money. Who pays, if anyone, appears to be an unresolved question, since Mills is not only out of the deal but is owned by Simon Property Group. Golub & Company is developing the office portion and it is in court with Mills over the residential portion of the property, which is now being developed by Joseph Freed & Associates.

I need a scorecard! And keep me away from Block 37 for, oh, a few more years.