Thursday, November 18, 2010

A borrower hit from both sides

This was published in Crain's a week ago, but it bears writing about, however briefly:

The long and short?  Mega Chicago restaurateur Phil Stefani guaranteed a $7 million construction loan used to renovate the building where his office is located, and which is owned in part by Stefani and others, including the well-known local developer Keith Lord..  The loan is past-due and the lender, Harris Bank, is pushing what he described as tough new terms for an extension, including new equity and prepaid interest.

Why is the project under water? In large part, because its anchor tenant, Amcore Bank, went under.  But here is the real kicker.  Amcore was also the lender for the project!  When it was shut down by the FDIC, the feds rejected the lease at Stefani's building and handed over the loan and Amcore's operations to Harris. So...now Harris is putting on the squeeze because the lease of its predecessor in interest tanked the value of the property.

You can read about the rest of the case going on in the Crain's article, but that story sort of left me out of sorts.  It seems like the banks get to have their cake and eat it, too.  Call it an application of the Golden Rule, I suppose.  And I have seen other similar situations where banks or government entities really play hardball for one overarching reason: because they can.  But Stefani has some very smart lawyers here, and I'll be interested in seeing how this plays out.

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