Harris Bank negotiations leave Stefani with bad taste
(Crain's) — Restaurateur Phil Stefani says Harris Bank is wrongfully squeezing him on extending a loan for the Near West Side building that houses his offices.
At stake is Mr. Stefani's guarantee of a past-due $7-million construction loan used to renovate the seven-story former industrial building at 1033 W. Van Buren St.
Despite the dramatic number of troubled loans, lawsuits in which borrowers seek to shift blame to their banks haven't become as widespread as they were after the collapse of the real estate market in the early 1990s, says real estate workout expert Guy Ackermann, who isn't involved in the Stefani-Harris Bank dispute.
“Many of the lender-liability lawsuits were frivolous,” says Mr. Ackermann, a partner in the Chicago office of accounting firm Plante Moran PLLC. “But this one sounds like it has some meat on the bones.”
Mr. Stefani, who operates such well-known eateries as Riva on Navy Pier and Tavern on Rush, is a 65% owner of the nearly century-old West Van Buren structure. The building is co-owned by a venture that includes Keith Lord, president and managing partner of real estate firm Lord Cos., which also has offices in the building.
Amcore Bank originally issued the construction loan in 2006. Chicago-based Harris inherited the loan when it bought Amcore after regulators shut down the Rockford-based bank in April.
The loan came due in June. Harris has refused to extend it except on harsh terms, according to a complaint Mr. Stefani filed Oct. 29 in Cook County Circuit Court.
Key to the case is the dual role Amcore had with the 84,000-square-foot structure. The bank was not only a lender on the property but also a key tenant, with a long-term lease for 8,000 square feet for a branch office, the complaint says.
The 15-year lease, signed about four years ago, was crucial to the value of the property, the complaint says. The lease has a net present value of $3.1 million, or about 30% of the $10.3-million value of the completed renovation project.
But Harris is seeking to take unfair advantage of a decision by the Federal Deposit Insurance Corp. to cancel the lease, the complaint says. The bank is demanding that Mr. Stefani and the other owners of the building invest an additional $2 million into the project and prepay interest of $665,000, the complaint says.
“There is no room to negotiate any of these business terms,” a former Amcore executive now with Harris said in an Aug. 29 e-mail to Mr. Stefani. A copy of the e-mail is attached to the complaint.
During the most recent negotiations with Harris, bank executives said the loss of Amcore as a tenant was "a major driving factor" behind the much tougher terms of the proposed loan extension, the complaint says.
Under federal law, the FDIC has the right to unilaterally reject all leases signed by failed banks.
Mr. Stefani wants a court order barring Harris from enforcing his personal guarantee of the loan.
A Harris spokesman declines to comment. The FDIC, which is not named as a defendant in Mr. Stefani's lawsuit, also declines to comment.
Mr. Lord, who also signed a personal guarantee, is not part of Mr. Stefani's suit. Mr. Lord declines to comment.
Harris is also trying to improperly benefit from what Mr. Stefani alleges in his complaint were fraudulent statements Amcore executives made last year about the financial condition of the bank. Mr. Stefani relied on those statements when he agreed in December 2009 to extend the loan, the complaint says.
Making matters worse, Amcore understated the equity Mr. Stefani and other owners invested in project, the complaint says. As a result, Amcore refused to fully fund the loan, creating a $1-million cash crunch, Mr. Stefani argues.
The balance due on the loan could not be determined.
Mr. Stefani, of Phil Stefani Signature Restaurants, did not a return a call late Tuesday requesting comment.
He is represented by law firm Scandaglia & Ryan, which declines to comment, and James Benak, a solo practitioner who did not return calls requesting comment.
