Block 37 developer settles dispute with lenders

Joseph Freed & Associates LLC has settled a dispute with its lenders on Block 37 over how to pay for cost increases to the new downtown mall, a matter that has slowed construction and led subcontractors to file liens for more than $2.3 million in unpaid bills.

Freed, a Chicago-based development firm that became State Street’s biggest retail landlord last year when it took over the Block 37 project, has been hit with liens from seven contractors since early October, according to documents filed with the Cook County Recorder of Deeds.

The biggest lien is from Minneapolis-based Weis Builders Inc., which claims it is owed $710,638 for its contract to provide and install steel framing for the Muvico movie theater that’s to be on the top floor when the mall opens next fall. Other liens were filed by contractors including those supplying doors, elevators and the exterior glass walls.

Sources familiar with the matter say Freed has been in talks with the project’s lenders, a group led by Bank of America Corp., over how to pay for certain tenant improvements and changes that Freed has made since buying the project in April 2007 from Mills Corp. Part of those changes involved additional costs for the buildout of Muvico, which signed on last fall, and for reconfiguring the mall’s layout.

Freed President Larry Freed declined to be interviewed but in a statement e-mailed to Crain’s says: “We have been engaged in complex discussions with our bank consortium concerning the financing of the Block 37 project. During the pendency of those discussions, the cash flow to the project has been interrupted and resulted in certain liens being filed.”

Freed obtained a $205-million construction loan for the Block 37 project in March 2007 from LaSalle Bank, now a subsidiary of Charlotte, N.C.-based BofA. The loan comes due in March 2011 and can be extended a year, according to a copy of the mortgage filed with the recorder’s office.

Unlike loans for property acquisitions, which are provided in one lump sum at the time of a purchase, construction loans are parceled out in so-called “draws,” which are provided over the course of a project.

Mr. Freed says in his statement that the discussions with the lenders were: “favorably concluded … resulting in all of the draws being fully funded by the end of this week. We are now able to renew the vigorous activity onsite that will result in an exciting and world-class project.”

A spokeswoman for Freed wouldn’t provide details, and a Bank of America spokeswoman declined to comment. The identities of the other lenders couldn’t be determined, and sources say the holdup involved a lender or lenders other than BofA.

The liens are the latest signs of trouble for Freed at Block 37. Freed has pushed back the opening to fall 2009 from its original plan of spring ’09. The mall’s biggest tenant, David Barton Gym, is walking away from its lease, claiming project delays allow the upscale health club to terminate its lease. The Freed spokeswoman says the developer is “continuing conversations” with New York-based David Barton regarding the terms of its lease.

Original Story - Crains