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Posted: Friday, 20 November 2009 3:37PM
Developer Loses Control Of Block 37 Project
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CHICAGO (CBS) ― A Cook County judge reportedly has appointed a receiver to take over the Block 37 mall project in the Chicago Loop, as part of a foreclosure lawsuit filed by the developer's lenders.
Crain's Chicago Business reported that Judge Margaret Brennan agreed to grant Bank of America's request to appoint CB Richard Ellis Inc. as receiver of the development.
Lenders led by Bank of America sued Block 37's developer, Joseph Freed & Associates, last month, alleging freed owes $128.5 million on a $205 million loan.
The lenders also claimed that the project has exceeded planned costs by $34 million and didn't have enough 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, according to Crain's.
But Freed officials argued seeking a receiver for the site could cost the bank more money in the long run and hurt 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," said developer Michael Reschke, chairman and CEO of Chicago-based Prime Group Inc. "Get it open and operating, and then resolve all the legal issues."
Freed's attorneys alleged the two defaults were technical and that the bank had acted in bad faith by agreeing to change-orders that required more funding, adding to the project's cost overruns. They said Freed put more money into the project because the banks had promised to modify the loan.
"From a leasing perspective, there will be a significant loss of momentum, from which it will take a significant time to recover," David Stone, president of Chicago retail real estate brokerage Stone Real Estate Corp., told Crain's. Stone 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."
The mall had been scheduled to open by the end of November.
It was not immediately clear how Friday's ruling would affect the future of the mall, which Freed had planned to open by Thanksgiving. But a worker at the Steve Madden shoe store told CBS 2 Friday that the store was was planning to stock its shelves late Friday and open for business on Saturday.
That would make it the first store to open at the mall.
The other parts of the retail-entertainment complex scheduled to open this month were the pedway between Dearborn and State Streets and street-level clothiers Zara and Anthropologie, shoe store PUMA and crystal retailer Swarovski.
Before Friday's ruling, Freed had said it expected to have the retail-entertainment complex fully occupied next year.
Other announced tenants include the Muvico theater chain; menswear retailer Bigsby & Kruthers; Tahini, which serves Mediterranean-style sandwiches; frozen yogurt store Starfruit Cafe; Sunglass Hut; and cirque-style dinner theater Teatro ZinZanni.
After the suit was filed, Mayor Richard M. Daley met with the developers and lenders in an effort to reach an agreement to keep the mall open, but the city has not yet said what came from those meetings.
Daley noted the new pressures facing banks from federal regulators.
"There's a disagreement between the developer and the banks. And the banks are being pressured to have so much capital by the federal government. You know…banks are changing. They have to have so much set aside," Daley said.
Developer Laurance Freed claimed he has leased about 70 percent of the retail space in the long-troubled project.
Anticipated Block 37 mall tenants include the Teatro ZinZanni dinner theater; the Muvico theater chain; clothier Zara; menswear retailer Bigsby & Kruthers; Tahini, which serves Mediterranean-style sandwiches; frozen yogurt store Starfruit Cafe; and Sunglass Hut.
The 22 W. Washington St. building, which houses CBS 2 and the Morningstar financial group, is also on Block 37, but is not part of the Freed development.
A planned Chicago Transit Authority "superstation" with express train service to O'Hare and Midway international airport is on hold and remains unfinished.
Bounded by Washington Street, State Street, Randolph Street and Dearborn Street, Block 37 once sported a hodgepodge of vintage buildings housing theaters arcades, wig shops, and even a couple of high-end grocery stores.
But in 1989, when the North Loop was seedier than today, the entire block was declared "blighted" and all the buildings except a ComEd substation were demolished.
(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)
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