Business

CHICAGO (CBS) ― The future of the mall at Block 37 downtown is in question, now that a consortium of banks has filed a foreclosure lawsuit against the developer.

Bank of America says the developers are on the hook for hundreds of millions, but hope to have a receiver appointed to finish construciton. But developer Joseph Freed & Associates says the mall "may never open."

A consortium led by Bank of America filed the foreclosure lawsuit against the developers of the planned mall, who officially do business as 108 N. State St. LLC. Joseph Freed & Associates is the firm in charge of the development. 

The lawsuit, filed Monday in the Chancery Division of Cook County Circuit Court, said the developer has been in default since March 2008 or earlier, and currently owes $128.5 million on a $205 million loan.

The lenders also claimed that the project has exceeded planned costs by $34 million.

They've asked a Cook County Circuit Court Judge to appoint a new developer. A California-based spokeswoman declined to specify what the lenders were planning for the site, saying that would be up to whichever receiver is named by the court.

"Bank of America in its role as agent for the lenders filed for foreclosure and as part of this filing is asking to have the court appoint a receiver to manage the property and get the construction completed," Bank of America spokeswoman Shirley Norton said in a statement. "We believe this is the best outcome for all involved, the banks, the tenants and the community."

The statement said Bank of America has already been working with Freed for over a year to help the developer resolve its financial issues.

"This has been a difficult economic period for developers. We recognize that and have been working hard with our clients to help them weather the downturn," the statement said.

But Freed said in a news release that the lawsuit is without merit and calls it "a serious breach of trust with the people of the City of Chicago." Freed said the Bank of America suit will have "serious and damaging consequences."

The mall had been scheduled to open in less than four weeks with tenants such as clothiers Zara and Anthropologie, shoe stores PUMA and Steve Madden, and crystal retailer Swarovski, Freed said in the news release.

But now the mall may never open, Freed said.

"Once shuttered, this project will be near-impossible to restart," the firm said in the release.

However, it was not immediately clear if the lenders had also sought an injunction to stop the project. Construction crews were working on the site Tuesday morning.

Keeping the mall from opening would mean "an immediate and substantial loss of jobs and much-needed revenue for the City of Chicago," a loss of future tax revenues, and betrayal of the tenants that have signed leases, according to Freed. 

Mayor Richard M. Daley wants to keep the worst from happening. He told CBS 2 Political Editor Mike Flannery he would personally call the parties involved and that he hopes to mediate a compromise that will allow the new retail mall at 108 N. State to open as scheduled next month.

Daley noted the new pressures facing banks from federal regulators.

"There's a disagreement between the developer and the banks. And the banks are being pressured to have so much capital by the federal government. You know…banks are changing. They have to have so much set aside," Daley said.

Developer Laurance Freed claimed he has leased about 70 percent of the retail space in the long-troubled project.

Anticipated Block 37 mall tenants include the Teatro ZinZanni dinner theater; the Muvico theater chain; clothier Zara; menswear retailer Bigsby & Kruthers; Tahini, which serves Mediterranean-style sandwiches; frozen yogurt store Starfruit Cafe; and Sunglass Hut.

The 22 W. Washington St. building, which houses CBS 2 and the Morningstar financial group, is also on Block 37, but is not part of the Freed development.

A planned Chicago Transit Authority "superstation" with express train service to O'Hare and Midway international airport is on hold and remains unfinished.

Carpenter Bob Weissenstein, one of hundreds working to prepare the site for next month's opening, said he hopes construction is not shut down, as it was once before.

"You know how the economy is now," he said. "There's hardly any construction anywhere. This is a pretty big place to work. So, I don't know."

Bounded by Washington Street, State Street, Randolph Street and Dearborn Street, Block 37 once sported a hodgepodge of vintage buildings housing theaters arcades, wig shops, and even a couple of high-end grocery stores.

But in 1989, when the North Loop was seedier than today, the entire block was declared "blighted" and all the buildings except a ComEd substation were demolished.

CBS 2 Political Editor Mike Flannery contributed to this report.

(© MMX, CBS Broadcasting Inc. All Rights Reserved.)

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