Freed renews charge of B of A ‘misconduct’ on Block 37
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(Crain’s) — Block 37 developer Joseph Freed & Associates continues to hammer away at Bank of America Corp.’s alleged bad faith in filing to foreclose on the mixed-use project, while the Daley administration isn’t taking sides.
Two ventures controlled by Chicago-based Freed allege the banking giant knew since 2007 of about $26 million in cost overruns largely due to the lower-level CTA station, according to documents filed late Friday in Cook County Circuit Court.
Meanwhile, the Daley administration also on Friday sought to intervene in the case, not to halt the foreclosure, but merely to make sure a lower-level Pedway opens as planned and that leasing efforts continue.
In a blow to Freed, the city is not taking a position on the bank's motion to have a receiver appointed to take over the project from Freed.
Circuit Court Judge Margaret Brennan is expected to hear arguments in the case Monday.
After Freed took over the project and closed on a $173-million construction loan in April 2007, both the developer and the bank discovered that the cost of the subway station had shot up to $249 million, compared to the $155 million originally budgeted, according to a sworn affidavit by Joseph Carr, development director with Chicago-based Freed. The station was originally intended to handle express rail service to the airports, a feature that was ultimately dropped.
Of that additional station cost, all but $26 million was eventually left uncovered, according to the affidavit and documents attached to it.
Since then, Bank of America alleges the cost overruns grew to $34 million, when it filed its foreclosure lawsuit on Oct. 19 in Cook County Circuit Court, then to $42.6 million, according to a bank court filing last week.
Because the unfunded additional expenses exceed the available cash to finish the project, the construction loan is “out of balance” and therefore in default, the bank alleges in its foreclosure complaint.
But B of A’s tolerance of the cost overruns is evidence that the problem is not a “material” breach of the loan, and the bank’s delay in filing suit is a sign of its misconduct, according to documents filed in court by two Freed-related development ventures that are defendants in the case.
“The bank has sat on its rights and allowed development of Block 37 to proceed until it was on the verge of its scheduled opening,” Freed contends. “’The bank used the alleged imbalance to extract concessions to which it was not entitled.”
Also on Friday, the Daley administration filed a motion seeking to enter the case to protect the city’s rights under a Block 37 redevelopment agreement and a separate agreement signed with the bank.
The Chicago Tribune reported on its Web site Friday night that the Daley administration was seeking to stop the case.
But a spokeswoman for the city’s Corporation Counsel says that was incorrect.
“We want to make sure that the receiver will reopen the Pedway later this month, continue the commercial leasing and, in general, successfully complete the project,” she says in an e-mail.
Chicago-based Freed took over the project from Maryland-based Mills Corp., which filed for bankruptcy and was liquidated.
The foreclosure case does not affect the office building on Block 37, with an address of 22 W. Washington St., which is separately owned.
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And don't the same documents show Freed wanted to give the Muvico company something like a 35% annual rent concession on a significant portion of the development with a major boost in buildout funding as a kicker?
All the genius types out there calculate for me what the net return on this project would have been if Freed had been allowed to modify the agreement with Muvico. Thanks in advance.
Are they going to put a plague or something in the building at the spot where Clarence Darrow had his office? So much history torn down for mediocrity. So much sturm und drang over such a plebian development.
So, anyone know when the engineering will catch up with the dream that is express CTA service to the airports from downtown?
Boondoggle from start to finish.
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FYI: Only the headline in the Chicago Tribune online story was incorrect. The story was fine and the headline in the print version was OK, too.
--Lorna
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All the news since then is that this is a TECHNICAL default, brought on by cost overruns, at lesat 60% of which were caused by the City of Chicago, not by Freed.
Still think B of A is engaged in normal business behavior? I sure don't.