B of A seeks $128 million, control of Block 37

By Thomas A. Corfman, Oct. 20, 2009

(Crain’s) — A group of lenders led by Bank of America is seeking to take control of Block 37 as part of a $128-million foreclosure lawsuit on the mixed-use project under construction in the heart of the Loop.

The North Carolina banking giant essentially alleges that the project by Joseph Freed & Associates LLC is running out of money, according to a complaint filed on Monday in Cook County Circuit Court.

“The suit lacks merit and (the company) will fight it vigorously,” Freed says in a statement.

A $205-million loan issued in 2007 to finance the retail and transit portion of the project is “out of balance” because the expected cost to complete the development’s first phase is $34 million more than the available money to finish construction, the complaint alleges. More than $128 million is now due.

BofA “is asking to have the court appoint a receiver to manage the property and get the construction completed,” a bank spokeswoman says. The identity of the proposed receiver could not be determined.

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. Mr. Freed personally and a holding company that he controls guaranteed the construction loan, and both now are on the hook for at least $50 million, the complaint alleges.

For better or for worse, the project has been a key initiative for Mayor Richard Daley, who demolished the site in 1989.

In a statement, Freed blasted the lawsuit, calling the complaint “a serious breach of trust with the people of the city of Chicago.”

“How (the lawsuit) helps the banks is inexplicable to us,” the statement says. “How it harms the city of Chicago is all too clear.”

The loan has been in default since mid-2008, when the construction cost deficit was $26 million, the complaint alleges. Since then, Bank of America says, it has been working with Freed “to help them resolve their financial issues.”

The lawsuit was filed about one month before the first retail tenants were scheduled to open on Block 37, which is along State Street, between Randolph and Washington streets.

BofA inherited the leadership role on the loan as part of its acquisition in 2007 of the parent company of LaSalle Bank. Other banks in the original group include Landesbank Hessen-Thuringen, Wachovia Bank, Charter One Bank and National City.

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Byron C. wrote:

I think I'm tired of the construction area. My vote is get the work done, and then fight over ownership once the sidewalks are passable.

10/20/2009 10:45:20 AM

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Larry S. wrote:

After waiting for more than a decade for Block 37 to get started, it would be a shame to see it's progress halted now. Especially with winter coming on and the full length of the Pedway interrupted by construction. Brrr!

10/20/2009 10:53:35 AM

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Patricia S. wrote:

I agree with Byron C. This boondoogle site has been disruptive and has cost taxpayers a lot of money. Note that the pedway will never again connect from the Red Line to the Blue Line subway trains due the gaping 'hole' created for the "x-press' train to OHare that was suddenly halted; again, due to prohibitive costs and overruns.

10/20/2009 10:54:58 AM

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Phil M. wrote:

Too bad, it would have been completed just in time for the 2016 Chicago Summer Games.....

10/20/2009 10:58:18 AM

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Rich L. wrote:

Another Daley boondoggle. Remember when the City ripped down the entire block 20 years ago - a number of old and historic structures wantonly destroyed in the process - because Michigan Avenue developers "had a plan" but they backed out? Another example of the City that no longer works!

10/20/2009 11:06:09 AM

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Lucy W. wrote:

I vaguely remember a sidewalk there. And perhaps, a red line stop too. At this point, I don't care if they open the mall and sell senates' seats there. Just open it already!

10/20/2009 11:06:50 AM

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Paul B. wrote:

It is rather strange that with all of the studies that were used to secure money for the X to O'Hare that no one is liable. There are tons of documents and tons of speeches that denied massive cost over runs would be incurred. Reminds me of the recent news story about the road repair employees that were making more repairs necessary rather then fixing the problems at hand.

Too many governments involved. The federal government provides funding for projects - these are matched by the state and of course the city. Each has their own venue and at the end of the day 50% or more of the cost goes for paperwork. Maybe it is tiem the governments don't [GIVE] us anything because at the end of the day we are never quite sure where they gave it to us.

Paul Butler

10/20/2009 11:10:31 AM

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Mark E. wrote:

Let's bury Block 37 with a huge amount of soil and turn it into a big ski hill. We'll get Pat Ryan and the Mayor to put together a 2018 Winter Olympics bid by changing the words in the previous bid from Summer to Winter. That shouldn't cost more that $50 million. Then we will sit back and watch the cash come rolling into Chicago.

10/20/2009 11:19:47 AM

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Eric M. wrote:

Bank of America comes out looking like idiots on this - do they think they're going to get more money before or after it opens? I'd be shocked if anyone thought it'd be worth more before it even opened than it would be after it had rent-paying tenents open for business.

What is B of A's gameplan? To look like idiots? If so, Mission Accomplished!

10/20/2009 11:25:45 AM

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Rhoda W. wrote:

When people get sick and tired of our mayor butchering vintage buildings and defacing properties like Soldier Field on our dime maybe they will finally vote out Daley and his bunch of clowns. Meanwhile, let's make it safe and visually pleasing for the winter and worry in the spring. Last time I checked, it's our city and these morons work for us. I think they've got it backward in Chicago. And how's the stimulus plan working for all of you out there? Unbelievable............

10/20/2009 11:44:20 AM

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Robert E. wrote:

B of A services a large number of properties in Chicago. They and other lenders are responsible for the foreclosure crisis that has left thousands homeless and entire blocks in decay. My question is...why is it the responsibility of municipalities like the City of Chicago and their Dept. of Buildings (underfunded and overworked) and consequently, the taxpayers to clean up their mess? Didn't they already get a bailout? Why wasn't that money used to secure some of their properties that are now being inhabited by prostitutes, vagrants, drug dealers, and gangbangers? Am i missing something here?

10/20/2009 11:48:09 AM

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Robert S. wrote:

Why are people dissing Bank of America? If the guy isn't paying his bills, the natural step is to take control of the property to preserve its value and try to sell it to recoup losses. This is what banks do. They were fools for lending on this project in the first place, for sure, but they're well within their rights to try to take a non-performing property.

10/20/2009 11:56:11 AM

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Jack F. wrote:

Gee, Remember the ROOSEVELT THEATER?

10/20/2009 11:58:32 AM

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Chuckeee C. wrote:

Memo to Joseph Freed: Honor your commitments, pay your bills, and the Lender won't have to foreclose. Probably another example where the profits would have been privatized but the losses will be socialized.

10/20/2009 12:06:33 PM

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Michael B. wrote:

This is a tragedy. Block 37 is about to open with accolades ....and B of A decides to pursue this course of action.
The Mayor needs to step in and pull the city business!

10/20/2009 12:13:08 PM

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Steve H. wrote:

I liked it better as an ice rink...

10/20/2009 12:14:09 PM

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peter H. wrote:

This has to be one the worst marketed projects in Chicago. What and to whom are they selling?

10/20/2009 2:27:01 PM

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Robert S. wrote:

Boy, that group of lenders written at the bottom of the article is a who's who of idiot commercial lenders. No wonder how they found themselves in this black hole called Block 37.

10/20/2009 3:10:50 PM

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R D. wrote:

It sure appears developer was eager to finish the project. I’m for the center to open and start generating income. This project will save jobs and generate jobs, two purposes I would not mind spending my taxpayer money for. Jobs will save homes and mortgages. Jobs will save banks and US businesses.

Treatment should be applied to the root and never by cutting the flower before it blooms.

Is Bank of America truly working for US?

10/20/2009 3:49:26 PM

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David N. wrote:

Borrowers are responsible for foreclosures on their properties-not lenders. Don't ever forget that. B of A works for its shareholders-not the US or Chicago- just like most businesses.

10/20/2009 4:07:13 PM

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Eric M. wrote:

Normally I'd agree with Chuckeee C and Robert S, but seriously this isn't a "normal" time nor a normal project. Part of the reason this project took so long is because the City took longer than it was supposed to with the CTA station work, a CTA station that now won't even open as planned. Freed also had to kick in extra money for that when there were cost overruns - sure he should have had contingency plans, but the City being stupid isn't Freed's fault.

Then Bank of America itself KNOWS thimes are abnormal - it had to borrow $20 BILLION in public money from the Feds to save itself - so for it to get all sanctimonious with a key project on what were public lands and that incorporate a major public works element is seriously incomprehensible.

If a farmer's crops is slow one year because of low rain, does he tear it out to "show it a lesson for being late" or does he continue to work with it, knowing that rains will come and that if he tears it out early he won't get full price anyway?

10/20/2009 4:44:48 PM

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R D. wrote:

I agree in general, not so much for shareholders on US government aid. Capitalism with a tweak.

10/20/2009 4:50:35 PM

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laura r. wrote:

Bank of America's conduct is outrageous. I believe that they were the ones running out of money last year when we - the taxpayers- bailed them out. These are extraordinary times and the banks - particularly BofA- are only paralyzing the issues rather than working with their long standing honorable customers as a team to improve the situation.

10/20/2009 6:13:36 PM

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Diane D. wrote:

I have been noticing a trend in the banking industry with forclosures and business. They are losing on the housing market and now are attacking the bussiness loans.
Banks seem to have reaped the huge moneies from the government bailout,( with no questions asked I might add), as to where they were placing the money. Now they are going after the loans they knew might be a risk in the beginning.
So my theory is are the banks looking at a business (like this) almost complete, a possible money maker, and saying, hmmm they are behind on the mortgage, but will make that up in a matter of time. So, if we foreclose we could return our money in a profit by running this a short time then resell when it becomes profitable.

10/20/2009 6:15:31 PM

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Andrew K. wrote:

B of A timing is plain brutal, they will not finish the project for less than developer, they must have something else on their mind and government aid money to pay for it so it is a win-win. This property is a gem and after 20 years it finally got developed. Greed wins over Chicago, pending smooth takeover I see a very nice bonus season at B of A.

Another loss for Chicago. I agree, pull the city business.

10/20/2009 8:12:08 PM

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ROBERT L. wrote:

Very self defeating move on B of A's part. Freed is a first class and very experienced Chicago developer. B of A is making a very poor decision to default the loan on technical issues (loan out of balance wrt construction costs estimated to complete project and liquid net worth covenant of guarantor). As long as the loan is current on interest and the borrower is working the asset to improve the value of the collateral, why cause all this aggravation for all involved? What is the benefit to thelender? Zero. iIs just a dumb move. Rather they should negotiate with Freed, require him to put in more equity to pay down the loan or pledge additional collateral if they are nervous, but don't pull the plug on a loan that is current and not in monetary default. Can't any sense be talked into this lender?

10/20/2009 9:54:34 PM

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John P. wrote:

Borrower can remedy by writing a check, yes?

10/21/2009 10:02:17 AM

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Alfred D. wrote:

R. D.: you asked if B of A is working for us. The answer better be NO, because it's not their job to work for us. they are in business for themselves, not for you. You work for yourself and your family, no for me. The only people who are supposed to 'work for us' are our elected representatives (this is a republic, after all). Now I ask you this: are your elected representatives working for us, or for themselves? The problem with banks is that government has been telling them what to do, how to do it, who to work with, under what circumstances, etc. Makes it darn near impossible to run a successful business when idiots who don't know peanuts about their business try to run it for them. Do you have cancer? Dr. Obama will see you now.

10/22/2009 9:43:43 PM

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