Block 37 allowed to open as Freed loses control of mall
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(Crain’s) — The long-awaited mall at Block 37 was cleared to open for business Friday just as developer Joseph Freed & Associates LLC was stripped of its control.
The city late Friday afternoon gave approval for Block 37 to open its underground pedway and ground-level stores, just hours after Cook County Judge Margaret Brennan said she would appoint a receiver to take over the project.
Judge Brennan agreed to grant Bank of America Corp.'s request to appoint a CB Richard Ellis Inc. executive as receiver.
B of A, Freed’s primary lender on Block 37, last month filed a $128-million foreclosure lawsuit against the project, saying Freed had defaulted due to cost overruns and that the developer didn’t have sufficient money to keep the loan in balance or complete the project.
“Appointing a receiver is the only way this job will be finished and that we’re not going to have a big empty hulk out on State Street,” John Anderson, an attorney for the bank, argued in court Friday before the ruling.
Larry Freed, Freed’s president, and other executives with the Chicago-based developer left the courtroom without commenting. In a statement later Friday, Mr. Freed vowed to appeal.
“We strongly disagree with the court’s ruling. We are the only developer in two decades to move Block 37 forward,” he said in the statement. “We are very suspicious of the bank’s motives just as Block 37 is opening and beginning to generate revenue. We still own Block 37 and will fight to protect our rights, reputation and investment.”
Lawyers for the bank, including Mr. Anderson, of Chicago-based Seyfarth Shaw LLP, declined to comment. A B of A spokeswoman in an e-mail says the bank’s only comment is, “We are pleased with the ruling.”
Work to complete the pedway and the ground-level retail stores hoping to open by Thanksgiving should continue unabated, said Steven Holler, the city’s chief assistant corporation counsel, speaking outside the courtroom.
A Freed spokeswoman said the company received an occupancy permit late Friday afternoon, and that the pedway and one retailer, Steve Madden, were to to open Saturday. The spokeswoman said two more stores, Zara and Puma, hope to open early next week.
“It’s the ultimate irony,” the spokeswoman said.
While the bank is within its rights to demand a receiver, some say the move may prove shortsighted, costing the bank more money over the long run and hurting the project's chances of success.
"With the project on the verge of opening, and all these leases pending, I don't know why you would want to change landlords at the moment," says developer Michael Reschke, chairman and CEO of Chicago-based Prime Group Inc. "Get it open and operating, and then resolve all the legal issues."
Lawyers for Freed argued that the two defaults were technical. Freed also alleged that the bank had acted in bad faith by agreeing to changes to the project that required more funding — which added to longstanding cost overruns — and that Freed put more money into the project because bank executives said they would ultimately agree to modify the loan.
Judge Brennan wasn’t swayed, however, and said Freed’s claims weren’t sufficient to dismiss the foreclosure suit or prevent the bank from having a receiver appointed.
Now, B of A may face a steeper challenge in filling the roughly half of the 280,000-square-foot project that remains unleased.
"From a leasing perspective, there will be a significant loss of momentum, from which it will take a significant time to recover," says David Stone, president of Chicago retail real estate brokerage Stone Real Estate Corp., which is not involved in Block 37. "The retail marketplace has confidence in Joseph Freed because there is history there, with this project. Bringing on a new leasing agent is in effect starting over."
Judge Brennan said she would name CB Richard Ellis Director of Asset Services Karen Pence Hollan as receiver.
After making the ruling, the two sides and Mr. Holler, the city’s lawyer, argued over how the receiver order would be worded. Mr. Holler sought to insert language — based on B of A’s court filings — that would compel the bank to provide upward of $70 million the bank said is necessary to complete the project.
The bank’s lawyer objected, and Judge Brennan gave the parties the weekend to hammer out the language. She will reconvene Monday morning to issue the formal order appointing the receiver.
One of Freed’s attorneys, Robert Graham of Jenner & Block LLP, told Judge Brennan that Freed would seek a stay of the order appointing a receiver, which would give the company time to appeal the ruling to the Illinois Appellate Court.
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Where is Mayor Daley and the city of Chicago in this battle. How is this good for Chicago?
Any local business that uses BOA should take notice of how this Bank treats it's customers.
We need Banks that work to grow Chicagoland business and our economy.
How many jobs are going to be lost from BOA's action?
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probably none. if anything, more lawyers, bankers and lease brokers are going to get some piece of the pie. The project will continue, the construction workers will keep working. So, just who exactly does lose in this? How will this play out? Will Freed owe B of A the over-run funds? Now? Or will the come due under future cash flows? Or will some major portion of this project's overall cost be "forgiven" and absorbed by the bailout funds which would mean, ultimately, the feds pay?
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Congratulations to Freed for making this project happen where others failed. Shame on B of A for tarnishing this moment for all of Chicago.
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With respect to Block 37, even if Freed was technically in default, the actions and timing of BoA defy logic. Again, they are a plainly stupid bank.
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Freed pulled this project through an economic Tsumani, nothing short of a miracle.
The day they open, the Judge yanks control?
When BoA hired Buck, was this their strategy all along? Let Freed bring it to completion and then try and foreclose?
When sales at Trump slowed, Deutche Bank was told by Trump that this economy is a "Force Majuere"
The bank realized that the Donald was better equipped to pull off the project...and he did.
Freed should have walked away last year. He could have cut his losses and let BoA and the City be struck with another disaster...like the Spire or Shangra La.
Instead, he completes this labor of love,,,,, for the City of Chicago.
Where is the Mayor on this? This has been his passion, now he is silent?
Call Oprah!..I think she owns BofA.
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I think this is a terrible occurrence, and the timing is really suspect and clouds the opening for all the retailers who are planning to open in the next week or so, like, Puma and Zara. So many have invested so much time money and effort, and to take this away from them as they cross the finish line is truly unacceptable...
I don't understand this. Can someone explain real estate to a newbie please?
As I understand it, the building is now open for business. Retailers are and will be opening their doors for business today. Construction is proceeding. The only thing that seems to have changed is who is in charge of leasing out the remaining space? Is that right?
Freed was, and still is the owner. Freed was and still owes the original amounts it signed up for? Freed will continue to be able to credit the rents and proceeds from this project towards its loans? The absolutely only change is that Freed will no longer be the salesman for the remaining space? Which is something else I don't understand: Freed claims 70% of the space is leased but the article claims only 50% is leased?
I really need help understanding the real repercussions of this ruling. Please, someone help me out.
TIA
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The holiday timing is ironic and tragic.
The banks are out of contol... and greedy as ever.
It would be nice to see the people who put in all the effort...win this time.
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I don't understand this. Can someone explain real estate to a newbie please?
As I understand it, the building is now open for business. Retailers are and will be opening their doors for business today. Construction is proceeding. The only thing that seems to have changed is who is in charge of leasing out the remaining space? Is that right?
Freed was, and still is the owner. Freed was and still owes the original amounts it signed up for? Freed will continue to be able to credit the rents and proceeds from this project towards its loans? The absolutely only change is that Freed will no longer be the salesman for the remaining space? Which is something else I don't understand: Freed claims 70% of the space is leased but the article claims only 50% is leased?
I really need help understanding the real repercussions of this ruling. Please, someone help me out.
TIA
All I hear is praise for a developer who went what? 20%? 40%? 50%? over budget and has only leased 50% of the space? Why? How is that a good performance? Please, someone enlighten me.
I'd love to be able to bid on a project promising it would cost 33% less and return 50% more than other developers. It would make things so easy. It just sounds like "reality bites". It just sounds like the last hurrah of the credit crisis problems where there's too much leverage for the real world to return on. Isn't Freed's projected return on this project less than 5%, if everything worked out? What's the current projected return expected to be? In the real world?
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Have we all listened to enough sh**tt?
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The developer, Joseph Freed, was days away from opening Block 37 and officials from Bank of America used their enormous influence to wrestle away control.
These decisions will most likely cost Chicago more jobs and hurt another Chicago based business. Both of these outcomes are of no concern to North Carolina based Bank of America.
Let’s recap a few facts about Bank of America from 2008:
Last year, without any time spent in court, the US Government, with the help of tax payers, gave Bank of America a bailout of forty five billion dollars ($45,000,000,000). This amount made Bank of America number 8 as far as total tax payer dollars received and represented 25.9% of total tax payer funds provided to banks.
Bank of America has now moved from defending their poor business decisions and inept management to searching for profit producing opportunities like Block 37.
Chicagoans, everyone is hurting and mistakes have certainly been made on both sides. But, at some point we must stand together. Bank of America may be “too big to fail” but that does not mean they deserve OUR business.
Take a stand. Close your Bank of America account and open up a new account with a local bank that did not receive federal bailout funds. Insure that your neighbor has a job and that Bank of America learns a tough lesson.
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What a hypocrite.
John V. wrote:
The news that Bank of America won in its effort to appoint a receiver to oversee Block 37 is incredibly disappointing.
The developer, Joseph Freed, was days away from opening Block 37 and officials from Bank of America used their enormous influence to wrestle away control.
These decisions will most likely cost Chicago more jobs and hurt another Chicago based business. Both of these outcomes are of no concern to North Carolina based Bank of America.
I have asked repeatedly for an answer to what I thought were some basic questions about this deal. All I get is finger-pointed, drunken rants and no real answers. Typical.
In my simplistic, Independent view, it looks like Freed was on course to finish the project with money he couldn't pay back, and which could never be paid back from the project based on his projected rent structures. And then it appears he wanted to get his lenders to agree to allow him to rent out space, and fund build-outs, for much lower amounts (Muvico at 35% less rental and double the build-out cost??). This "plan" would have taken the miniscule return on this project from barely positive to definitely negative....and you think the bank is at fault for not agreeing to that idea?
Location of the bank's headquarters, TARP fund recipient or not, that is just bad business. Do you object to good business decisions? Is that what you want? "everyone else is getting away with them, why can't we"??
I have seen so many businesses founded and operated on faulty assumptions, relying on insider deals and clout, that I am sick of it. It is way past time that businesses in Chicago operated with some semblance of reality and legitimate purpose. The purpose of a business is to make money, build wealth, and continue to not only survive, but to flourish. Negative returns forever more is not such a business.
I am hoping that someone can explain where/how I'm wrong. Please.
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Just stating my opinion.
Its people like you who resort to labeling people "republican" and name calling "hypocrite" that add nothing to the debate of our society and only create more and more division. As a tax payer I would have liked to have seen some simple stipulations placed on Bank of America and other banks that received huge sums of our tax dollars. These stipulations could have mandated that the same flexibility provided to these banks by the American people were extended to the banks customers.
All I would like to have seen here was a smart and speedy resolution that benefits both sides and is fair to both sides. Thats not a "Republican" view by rather an American view. When you learn to understand the difference your arguments will improve.
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Do you, or do you not, feel that bad business decisions should be rewarded or ignored?
Perhaps they were in the past, but do you think we should ignore the past and the obvious results of past behaviors, or should we learn from our mistakes and correct them going forward?
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