Block 37, the infamous lot in downtown Chicago, has drawn controversy for the past two decades as a series of developers have struggled to turn it into a mixed-use project. The latest drama surrounding the 285,000 sq. ft. retail development took place in late November when Cook County Circuit Court Judge Margaret Brennan appointed CB Richard Ellis (CBRE) as receiver for the property.
The story has been far from straightforward. The developer, Joseph Freed and Associates, remains in control is in the midst of an effort to contest the appointment while CBRE, the Los Angeles-based brokerage giant, has been in limbo pending the resolution of a key insurance transfer, delaying handover of Block 37.
Brennan’s ruling was the result of tensions that have been brewing for the last two years between Freed and primary lender Bank of America. So far, Freed has received $135 million of the $205 million construction loan from the bank in addition to putting about $20 million of its own equity into the project. Both sides agree that the project will require about $72 million to complete, but the bank is loath to continue funding it with Freed in control.
The parties have had disputes over leasing decisions, most prominently in late October when the bank refused to approve a revised lease that Freed had signed with movie theater operator Muvico. More troubling, the bank said that Freed had been in default on its construction loan since March 2008 and that the project was about $42 million over budget.
In part, the project seems to be a victim of timing. Tenant demand for new retail real estate space has dried up and in cases where retailers are moving, they are asking for cheaper rents. A project coming on line in these conditions faces stiff challenges.
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