The Dirt Lawyer's Blog Archive

Sometimes real estate lingo sounds like an episode of The Sopranos. For instance: We gotta take a haircut on this deal, Paulie. Oh, just whack the tenant. Is (Broker X) a friend of mine or a friend of ours? We're gonna take out the bank. It's what we hafta do. Okay, maybe I am exaggerating. But taking out the bank is Joseph Freed's goal and its best alternative to a negotiated agreement since any such agreement at this point seems impossible. Freed is looking for equity and debt, according to Crain's today. You can read all about what is going on, including a hearing next Friday. While the receivership order was entered, I think based on the story that the order was stayed until the next hearing, by which time the receiver can take over upon presentation of a bond and insurance. Now, is Freed going up for interim appellate relief in the meantime? I haven't read the order in the case so I don't know whether the so-called magic words regarding such an appe...

So, more details are out on Block 37. Work from the awesome team at Crain's is that apparently Muvico walked from its anchor lease at the property but offered to come back at better (read: cheaper) terms. In other words, it looks to me like the old tenant cramdown. Freed, not wanting to lose the deal and presumably sensing it could still make money, takes the deal to Bank of America. Why? Because the lender as a rule in deals like this has the right to approve major leases or material modifications to existing leases. Sometimes there will also be specific criteria under which the borrower can enter into leases without lender approval. And Freed is telling us the lender said no, and did so "improperly." You can read the story to get the gory detail being alleged in Freed's motion to dismiss, the gravamen of which is that it thinks the banks wants to capitalize on Freed's work to lease up the property and profit from it. Now, the lender can argue that it did ...

Is this a classic case of no good deed going unpunished? Or is it just a lender enforcing its rights, albeit at an awkward time. Bank of America, as the lead lender, is foreclosing on the retail portion of the long-awaited and oh so troubled Block 37 in downtown Chicago and will be in court this afternoon to have CBRE appointed as a receiver to keep the project going, including finishing construction. Unless there are some defenses sitting out there that we'll hear about, legally they presumably have that right, and even though Freed says construction could grind to a halt, surely the loan documents contain assignments of the construction contracts, architectural drawings and all that so the lender could in fact take over the project. (Hopefully none of the retail deals will allow the tenants to pull out in the event of a foreclosure or bankruptcy or something, or the project gets done in time to prevent triggering the right to walk for failing to finish landlord construction....

Let's throw a little more money at a problem: namely, Block 37. Now we're looking at another $12 million to help pay for a Loews hotel there. The money will also apparently help pay for CTA cost overruns , which is apparently going to cost some $320 million. But let me say this: my gut reaction is that this is a good use of TIF money. Block 37, face it, is a showcase. We took this long to figure it out, and kudos to Freed for coming up with a good use. I like the idea of a hotel there.

I'm kidding, of course. But hey, the CTA station at Block 37 will now cost more than $320 million , way up from the $213 million budgeted. I think that's half of what Soldier Field (or the once-landmarked monstrosity on Lake Shore Drive with that name) was, and who knows how much less than Millennium Park? Wasn't that $600 million, too, or more? So, the city will find more TIF funds to help pay for it. And wait! That's not to finish the station. Get this: But people familiar with the matter say the new subsidies will cover only costs already incurred. Until even more money is found, those people say, the semi-completed station will be mothballed, much like an unfinished basement in a home whose owner has poured the concrete but can't afford to install carpeting, paneling and other finishing touches. Unbelievable. Oh, wait, this is Chicago, where budgets are only very rough estimates. Seriously, if I were a developer, can you imagine what my money partner ...

The star-crossed Block 37 saga goes on and on and on. According to the Tribune, the largest tenant in the new office portion of the building, Morningstar , is suing the previous developer, Mills Corp., over the size of its premises. Originally, the financial service firm planned to lease 211,000 square feet, but apparently with the building closer to completion the remeasurement of the building is indicating that the space will be something more like 237,000 square feet. Premises measurement in a new development can be complicated. The typical standard is that of BOMA , the Building Owners and Management Association. There is virtually always a “load factor” calculated here, which is a multiplier that takes into account the tenant’s pro rata share of the common areas of the building. We’re talking more than 10% here, though. I have not read the lease, so I have no idea what it says about the measurement or remeasurement of the premises. Nor do I have a clue about the lease negotiat...