Bank ‘improperly’ blocks new Muvico deal at Block 37: Freed
By Eddie Baeb and Thomas A. Corfman
Crain's Chicago Business
October 27, 2009
A deal for a Muvico movie theater at Block 37 is in jeopardy after Bank of America Corp. “improperly” refused to approve revised lease terms for the upscale movie theater, according to the developer’s response to the lender’s foreclosure lawsuit.
Chicago developer Joseph Freed & Associates LLC entities said in court filings Monday that B of A doesn’t have the right to foreclose on the project or have a receiver put in charge of the downtown mall that’s to open next month.
The filings, which a judge could rule on as early as Monday, also confirm the involvement of Chicago developer John Buck Co. as an adviser to B of A. The filings claim a bank executive said Buck earlier this year recommended modifying Freed’s loan and increasing the loan’s amount even more than Freed had proposed.
“Despite Buck’s report, the bank’s footdragging on the loan modification continued,” the filings say.
A Buck executive declines to comment.
Freed contends that the foreclosure lawsuit, filed Oct. 19 by Charlotte, N.C.-based B of A, came soon after the developer refused to sign a waiver of the bank’s conduct with respect to the lease with Muvico — the largest tenant and a key top-floor anchor in the 280,000-square-foot project.
Muvico walked away from its original lease in June after a companywide restructuring, the filings say, and instead offered new, presumably more tenant-friendly terms.
A new Muvico deal was struck and presented to B of A in the fall, but Freed alleges B of A refused to sign off on the terms without a waiver.
“When (Freed) realized that (B of A) was improperly withholding approval of its plans to proceed with Muvico, (Freed) objected to continuing to execute another of plaintiff’s letters without reserving its rights to complain about (B of A’s) arbitrary action in refusing the Muvico approval,” the filings say.
The bank, Freed says, subsequently stopped funding construction draws last month and also halted loan modification talks — which had been ongoing since September 2007, just five months after Freed took over the project from Mills Corp. and invested $15 million of its own money into the development.
Muvico President Michael Whalen says the Fort Lauderdale, Fla.-based chain remains committed to opening a seven- or eight-screen theater at Block 37 next spring or summer.
“My hope is that Freed, the city and the banks can come to some resolution,” Mr. Whalen says. “Freed is by far in the best position to finalize this project. The idea the banks are stopping at the last minute like this, just from a common-sense standpoint, it makes no sense.”
Freed, in its motion to dismiss the foreclosure suit, alleges that B of A didn’t live up to its obligations to fund the project and also misled the developer about its intent to modify the loan.
Freed’s filings allege that the motivation for B of A, which inherited its role as the project’s lead lender when it acquired the parent company of LaSalle Bank in 2007, in the foreclosure lawsuit is to take control for the bank’s financial gain. The bank’s foreclosure lawsuit alleges that Freed defaulted on two fronts: saying the loan was out of because of to $34 million in cost overruns and that Freed has insufficient assets.
“The so-called defaults are pretextual,” Freed says in its filings. “Plaintiff’s underlying agenda is to step into this project now that it is on the verge of opening, in order to capitalize on the successful work of the defendants and to capture the value in and control over the project.”
A Freed spokeswoman declined to comment. A B of A spokeswoman writes in an e-mail: “We believe the allegations are totally without merit and will be vigorously opposed.”
The bank’s “emergency motion” to appoint CB Richard Inc. as receiver of the project went before Cook County Circuit Judge Margaret Brennan on Monday afternoon. At the hearing, Judge Brennan said she first wanted a written response from the bank’s attorney, John Anderson of Seyfarth Shaw LLP, on Freed’s motion to dismiss and the developer’s response to the bank’s request for a receiver.
A follow-up hearing was set for next Monday, and Freed’s attorney Daniel Lynch of Lynch & Stern LLP told the judge the developer also would make additional filings before then.
Freed says B of A hasn’t demonstrated proper grounds for the appointment of a receiver to take over management of the project. The developer’s filings also say the bank didn’t show that CB Richard Ellis has the development expertise required to complete the project, and note that the real estate services firm has conflicts of interest because the firm represents competing retail projects and has represented several current Block 37 tenants and two former tenants: David Barton Gym, which backed out its lease; and athletic clothier Lululemon, which is suing to cancel its lease.
“Because (CB Richard Ellis’s) relationship with potential tenants would be ongoing but its position as receiver will be of limited duration,” Freed says in the filings, “the incentive will likely be to accommodate the tenant before the development, as it did with the David Barton Gym lease.”
A CB Richard Ellis spokeswoman declines to comment.
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