The Dirt Lawyer's Blog Archive

First it was Block 37. Now it is the Spire. According to this Tribune story , Shelbourne Development and Garrett Kelleher are counter-suing the bank for fraud, saying that the bank was deceptive in the terms of arranging its portion of the financing for the now-dormant project. B of A went after Kelleher on a $4.9 million guarantee previously, and this is the response. As with past cases, I haven't read the papers and am not planning to do so unless someone sends them to me and/or pays me. According to the story, the counterclaim says that Shelbourne should not be deemed in default because of the economy, in which B of A has taken billions of bailout money. That smacks of the Trump Tower force majeure defense and I think that will be a tough battle. In addition, and again according to the story, one of the allegations of fraud is based on this: "the bank took the proceeds of a certificate of deposit owned by Shelbourne for more than $3.5 million and applied it to the amou...

I read a story about the stalled Spire in Crain's today that just reminded me why it is so important to get lending moving -- and hopefully the plan announced today that should have been announced in November or on January 21 will do so. It is, of course, that old domino effect. A project is on hole, people lose jobs and cut, and so on: "If there's no buildings going up, what do you do?" said James Connolly, a Laborers' union manager. "Prepare yourself because it's going to get worse before it gets better." Construction workers are accustomed to boom-and-bust cycles but this downturn appears deeper and longer. The impact of lost wages of $35 to $40 an hour ripples through the economy. "People out of work, people lose their homes, people lose their hospitalization, people lose all their benefits," said Tom Villanova, president of the Chicago and Cook County Building Trades, which covers 100,000 construction workers. "It'...

When I read this story, captioned " It can't get much worse ," I wanted to jump out the window. Luckily I was in the basement. Seriously, here's what some are saying in institutional investor land: Properties with purchase offers are not closing; transactions are down; and managers are going hat in hand to their investors for cash to prop up properties they do own. “There's no light, no tunnel, no liquidity, no equity,” said Jeff Barclay, managing director and head of acquisitions and development at real estate investment firm ING Clarion Partners , New York. “Some people are being wiped out,” said Claudia Faust, co-founder and managing partner at Hawkeye Partners LP, a real estate private equity firm in Austin, Texas. Hawkeye takes stakes in real estate money managers Deals are being broken at historically high rates. Some buyers are reneging on deals struck just a month or two ago. Others have walked out on deals or “shamelessly” renegotiated deals after they...

Boy, there's enough bad news this week that I am catching up on to make you want to crawl in a hole. But I won't. It is a spectacular day and as soon as I can get done with work and before trick-or-treating begins, I am going out for a nice walk or maybe even nine holes. Michael Mandel , citing a Morningstar report, tells us there's a 20% chance that CB Richard Ellis could go bankrupt. For dirt folks, that's would be as impossible as, say, Lehman going under. Oops.... I did not go to ULI, but David Bodamer did, and the mood there was pessimistic . Doug Cornelius has a link to the trends report here . On a side note, I got an email from ICSC yesterday telling me that hotels are cutting rates for next year's convention in Las Vegas. You know what that means -- fewer attendees. No wonder the store closing signs are out at Value City -- they filed a BK the other day and plan to liquidate. Don't laugh, but maybe I should go check out the furniture outlets th...

Grandpa will forgive me. He always liked computers. And I have this thing for writing about the Spire. So, Calatrava and Perkins & Will have stopped their work on the building . (See also here, here , here and here .) If I were going to be the PR person, I'd say (as I have before), "Well, you have to do this in the ordinary course of business if you are providing work to the project in order to protect your rights against the property under the Illinois mechanics lien laws." Here's the problem. Their PR people have said this, in addition to what I think they should: "“The amount will be disputed,” the spokeswoman says. “These liens, both of them, are sort of the normal course of business for these companies to protect themselves. That’s fully in their right to do that, and we will work to resolve them.” That means there's more than a mere protection of rights here. There's a dispute. You do not have to be a rocket scientist to figure out this...

Ty Warner, the Beanie Baby dude turned real estate investor, is buying the 10,000 sf penthouse at the Chicago Spire, which must give some people confidence the project is a go. We don't know the actual purchase price, though they were asking $40 million . That's a lot of Beanie Babies (a phenomenon which I truly never understood). Warner has (intelligently) diversified, buying up a lot of high-end hotels, IIRC.

He's right . It is a big hole in the ground. And the building plans do look much nicer, so much so that if the Chicago Spire doesn't get built here, it ought to be built somewhere. Garrett Kelleher's spokespeople claim that a GC will be hired soon to work on the above-ground stuff (details, details). The current plan is for a mid-2009 start. Call me cynical, but I wonder if some people are thinking mid-October 2009, since the IOC meets on October 2 to award the 2016 Olympics to some great city. Another reason to wait a year: putting together a construction loan syndicate. Yes, Mr. Kelleher may be loaded, but he does not want to get into a Waterview Tower situation. You are better off with a hole in the ground for now, especially if you have cash to pay the interest on the A&D loan or finance it with your own cash. Halting construction here once you move up would be an unmitigated disaster. And I'm not hearing much lately from Kelleher's lender of cho...

I have been an unabashed fan of the Chicago Spire project. And the Tribune reports today that 30% of the condos are sold. They made a point of saying these were sales, not refundable deposits. Now, I have not seen the contract to see what, if any, outs there are, but I'd bet there are close to none. 30% is a traditional benchmark for a construction loan, but, as the story intimates, I would not be surprised if lenders want to see a higher threshold met. It may (or may not, in this market) depend on the LTV, or how much coin Garrett Kelleher brings to the table. And since he's funding it himself we know he has the desire and wherewithal to do it. The international marketing (with exhibitions in Dublin, Singapore, Hong Kong, Beijing, Shanghai, Johannesburg and New York, not to mention the ads I see in the WSJ all the time) may have paid off. It was a sound strategy given market conditions here. P.S. If you want to see construction pics click here . What a great site Sky...

Tom Corfman has a story at Crain's this morning stating: Garrett Kelleher failed to pay nearly $430,000 in property taxes due nearly two months ago on the proposed site of the Spire, even as the Irish developer was launching a lavish, five-city Asian tour to trumpet the massive skyscraper. Corfman goes on: The 2,000-foot-tall Spire project would challenge even the most seasoned developers. And the failure to manage a routine task like property taxes raises questions about Mr. Kelleher’s ability to complete a multi-billion dollar project that demands the highest level of concentration. The reason? According to a spokesperson, an error in the address for the bills. I personally think Corfman is the best real estate writer in Chicago out there, but, putting my lawyer cap on, I can tell you this happens to the best of developers. It often occurs in the early phases of a development because a tax bill does not get to the right person or the right address because records have not...

I'm not buying either, but both go on sale today. The Smart, with a base price of $11,590, starts shipping today. It's a nice little car from what I can tell. And it looks like it is sold out for 2008, with ~30,000 reservations. The Spire's sales office also opens today , with reported prices of $1,400+ per square foot of space. I don't think it will sell out today, although there are about 600 appointments to look at the sales center. (Not much going on in the legal action discussed here previously right now; Shelbourne filed a motion to dismiss the adjacent HOA's complaint and the next status hearing is on the 28th.) Both are very cool. I'd like to buy both unique products. The boss would love a pied-a-terre in the city and that is certainly on the dream list. I see it happening soon, though probably not at the Spire. As for the Smart, it is more in reach price-wise, and we'll have to succeed at dieting and wait our turn for a convertible version...

And that's a pretty big shove. The neighboring HOA has sued Shelbourne Development , who is developing the Chicago Spire, to rescind its easement agreement allowing certain access to the property. The complaint seeks declaratory relief in chancery. I have not looked at the complaint; I will if someone emails it to me but I have neither the time nor the inclination to go to the Daley Center to grab a copy. Based solely on media reports, here's a quick thought or two. Tom Corfman's article says the plaintiffs are alleging fraud on the part of the defendant and its attorney in that they waited until the easement was signed before revealing "the full scope of the project." If that is true, I can tell you that fraud is not an easy case to win in Illinois. Corfman also reports that Shelbourne doesn't think the HOA owns the land. (I don't know whether there is alternative utility access; if there is I assume it is expensive or hard to access or both. As a ...

Hey, it is potentially an amazing development (and I for one would love to see Garrett Kelleher build it even if to say "I told you so"). Thanks to the amazing posters at SkyscraperPage.com ( here is a link to the Spire discussion, which has very cool pix of the site under construction), I was able to look at Shelbourne's and Thomas Murphy's responses to the HOA dispute . My summary of Murphy's comments are: 1. We have an ironclad easement drawn up by the condo association's lawyers (Hmmm...not even going there...I may actually have to go read this document). 2. This will not affect the construction timetable. (Maybe. I don't know the project well enough to know.) 3. We're in a construction zone. Townhouses settling two inches in five years = de minimis non curat lex . (Sounds fair on its face, but I'm not a judge or a construction litigator.) 4. Even though our rights are ironclad, we applied for a revised foundation permit out of prude...

Here's an interesting twist (I know, bad pun on a Friday) to the Chicago Spire deal. Apparently Shelbourne Development paid the neighboring condo association $500,000 for an easement across some of its land. The association claims it thought this was only to run utility lines, but apparently the plan was also to build some foundation in the easement area as well. And that plan, according to the story, might cause some adjacent townhomes to settle by two inches. I have not looked at the easement agreement so I obviously cannot say whether Shelbourne had the right to do this. The association wants to say "never mind" and rescind the easement, and has retained Schiff Hardin to do so. If they pursue this it'll be interesting to see the legal theory under which they think the easement should be extinguished. Mistake? Fraud? We changed our minds after really thinking about it? (OK, not that one. But it really will be interesting to see where they go. They have g...

Construction on the Spire will apparently start within a few weeks . Now, I've seen caissons dug and foundations built only to have the deal go south, but this sure is a great sign. Go Garrett go!