Monday, October 26, 2009

Block 37: foreclosure, receivership and all that

Is this a classic case of no good deed going unpunished? Or is it just a lender enforcing its rights, albeit at an awkward time.

Bank of America, as the lead lender, is foreclosing on the retail portion of the long-awaited and oh so troubled Block 37 in downtown Chicago and will be in court this afternoon to have CBRE appointed as a receiver to keep the project going, including finishing construction. Unless there are some defenses sitting out there that we'll hear about, legally they presumably have that right, and even though Freed says construction could grind to a halt, surely the loan documents contain assignments of the construction contracts, architectural drawings and all that so the lender could in fact take over the project. (Hopefully none of the retail deals will allow the tenants to pull out in the event of a foreclosure or bankruptcy or something, or the project gets done in time to prevent triggering the right to walk for failing to finish landlord construction.)

Why now? No confidence that Freed could finish the lease-up, so bring in CBRE? Is there a potential here for more gain by jumping in? Interestingly, according to one Crain's story, "As an additional ground for default, Freed President and CEO Laurence Freed’s “unencumbered, unrestricted liquid assets” have fallen below $5 million, in violation of a key condition of the loan, which was issued in 2007, according to the complaint." Or is it just the fact that there have been millions in major league cost overruns has the lenders frightened?

Okay. Lots of people have taken a hit in this market. I'll take an educated guess here and say Freed may well have been pumping his own money into Block 37 to get it done, probably to the extent that his net worth has gone below the threshold for the default. So, let's nail the developer for -- gosh -- trying to do the right thing instead of walking or handing over the keys? If that is the case then I really do not know what to say. I do know that Mayor Daley wants this property opened -- or else! Since I represent developers more than lenders my sympathies lie in that direction, and I wonder if this could have been handled better, of differently. And would the old LaSalle Bank folks have done the same?

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