The new FFC West Loop now features a street-level, three-story glass enclosed atrium entry located just off the intersection of Clinton and Madison streets. Metra commuters, local residents and working professionals are offered direct access to the health and fitness facility.  The new club interior features high-end finishes such as shaker cherry wood, aesthetic millwork, stone and marble décor and sports flooring.  McShane utilized numerous eco-friendly construction materials and implemented an aggressive construction waste program. 

FFC West Loop offers its members general cardio and strength training areas, custom triathlon and endurance sports training classes, group fitness studios, high-end locker rooms, day spa and airbrush tanning salon, Kids Club center, a retail Sports Shop, the Protein Bar Café and NovaCare Physical Therapy.  The facility features an indoor 75-foot junior Olympic lap pool with atrium ceilings in addition to an outdoor recreation pool accompanied by a sundeck with a bar area and fire pit.

McShane Construction completed approximately 31,200 square feet of new construction and 20,800 square feet of extensive renovations throughout the first and third floors of the building. This is the sixth location that McShane Construction has completed for FFC in the Chicago market. 

Antunovich Associates provided the architectural services for the fitness assignment.

John Jaeger and Dan Cohen of CB Richard Ellis’ Multi Housing-Group represented Fifield Companies and Pacific Life Insurance Co. in the deal.

Located at 353 N. Desplaines St., Echelon at K Station is 95 percent leased. A 350-unit high-rise, Echelon at K Station includes studio, one- and two-bedroom residences with one to two baths. Floor plans range in size from 572 to 1,111 square feet with rents ranging from $1,565 to $2,845 per month. 

Echelon’s full slate of luxury amenities include: a fitness center with Precor and Matrix Fitness Systems cardio and strength equipment, flat screen monitors and locker rooms; a landscaped outdoor deck with a swimming pool, barbeque area and lounge seating; game room and lounge; a business center and conference room; and a party suite, which includes a kitchen and dining area. Additional amenities include 24-hour maintenance and door staff, on-site valet dry cleaner and package receiving.

All residences at Echelon at K Station include kitchens with granite countertops and stainless steel appliances; in-home washer and dryer; and individually controlled heating and air conditioning. 

The building is part of a 2,100-unit, five-tower master-planned development called K Station, which Fifield Companies broke ground on eight years ago. The development is located just north of the Fulton River District and west of the Chicago River.

With the sale of Echelon complete, as well as an earlier tower called Left Bank at K Station, Fifield Companies is currently leasing two apartment buildings at K Station: Alta West Tower and Alta East Tower. Ground was broken in November 2011, for the fifth and final tower at the development, K2.

Rise Interactive, an Internet marketing firm, was previously located at 235 W. Huron and selected the new space within 1 S. Wacker for its Chicago-based operations. The new space will feature a new reception area, conference room and café/ lounge area. The project will also include the addition of new carpet and paint throughout the space.

Bryan Kreuger is the project executive and Steve Sandquist is the project manager leading the project team on behalf of Reed Construction. Partners by Design is providing the architectural services and CBRE is serving as owner’s representative. The project is scheduled for completion early in 2012.

HFF is marketing the property on behalf of the seller, Waterton Associates. 

River North Park is located at 320 W. Illinois St. near the Merchandise Mart, State Street and North Michigan Avenue employers, and Chicago’s central business district. The 24-story property has studio, one- and two-bedroom units as well as courtyard townhome units in all averaging 694 square feet, 29,982 square feet of ground floor retail and a 216-space enclosed parking garage. Community amenities include a fitness center, indoor pool, sundeck with gas grills, large central courtyard and Internet café. The community is well-positioned for future apartment renovations as well as common area upgrades.

The HFF investment sales team representing Waterton Associates is led by Executive Managing Director Matthew Lawton and Managing Directors Sean Fogarty and Marty O’Connell.

Scott Nelles, regional director for Regus, recently discussed the growing demand for flexible office space and the advantages that “co-working” offers to businesses.

Q. What is prompting the growth in flexible office space?

A: The Chicago market for Regus has been pretty strong for a number of years. We’re seeing a lot more demand in the marketplace, especially for people who are looking for more flexible workplace solutions. The demand has been steadily improving over the last couple of years as we’ve been moving out of the recession. It’s prompted us to look at opening up more locations and serving more people in the Chicago area.

Q. What is attracting these companies to Chicago?

A: There are a couple of interesting trends that we’re seeing. One is we’re seeing a lot more new businesses coming into the market, whereas in the past couple of years, there were a lot of people just shuffling space. They were moving from one place to another place trying to get a better deal on renewals. We’re starting to see a significant change in that today, from the Fortune 500 type companies to tech companies that are expanding rapidly and to business startups that are looking to get into a new market or startup a new business here in Chicago.

Q. Why are tech firms particularly interested in flexible office space?

A: I think that tech firms are starting up. You’re seeing a lot more investment in business startups, so they need to get office space quickly and not worry about that piece of their business and really focus on growing their business as quickly as possible and establishing their market presence. That’s one piece of it. The other piece is you’re seeing companies that over the past couple of years have centralized some of their sales efforts are now decentralizing and getting back into markets and establishing more of a local presence as they build up sales teams.

Q. What are some of the amenities businesses are finding in the Chicago area?

A: The Chicago market is a huge market with 9 million people who live in the area. There is a tremendous amount of talent in the marketplace. I think that’s why Chicago continues to be a hotbed for companies. There also are a number of different of options that they have and places where they can locate their business within the Chicago market to attract those people.

Q. What are some of the advantages of flexible office space?

A: Some of the biggest advantages are that a company doesn’t have to spend a whole lot of money and a whole lot of time to establish a presence immediately in a market like Chicago or anyplace that there is a Regus center. What Regus allows businesses to do is come into a market with limited capital outlay or no capital outlay at all and bring in their workforce and immediately establish their presence. They can focus on their core competencies instead of running the office.

From a flexible standpoint, what Regus is able to offer is the ability to work however, wherever and whenever they want. For example, you have a sales force that you’re starting up in the Chicago area, and these people may be all over the place. They may be having appointments throughout the entire Chicago area, or maybe they’re travelling outside of the Chicago market and they don’t necessarily need to have a place that they call their own every single day.

Why would a business need to pay for office space 24 hours a day, seven days a week for every single person they have if not everybody is there all the time? There’s a tremendous value in what we call co-working or where there’s one company that has multiple people coming in and out of an office – the “hoteling” concept.  Some companies don’t even need the office space at all, but they just want a legitimate business address and they want a phone number. That’s what we call a virtual office. There are some companies that don’t even need the address or a phone. They just need an office that they need to be able to pop into whenever they need it.

Q. Do you expect the type of demand for this type of space to continue in 2012?

A: I think that this is a growing trend that we’re going to see in the marketplace that’s not likely to reverse itself. With Internet and phone being as ubiquitous as they are today, people are no longer tethered to their office. I think it offers enormous flexibility to the mobile worker.

Bob Chodos

Bob Chodos
Principal
Colliers International
Chicago

How much of an impact has Bob Chodos had on the Midwest commercial real estate industry? One number spells it out: 13 million.

As in, during his 30-year career, Chodos has completed tenant representation assignments totaling more than 13 million square feet. And if that number isn’t impressive enough, consider this one: 7 billion. Those career transactions have been valued in excess of $7 billion.

It’s little wonder, then, that Chodos, principal with the Chicago office of Colliers International, is considered such a valuable member of the area’s commercial real estate profession by both his peers and his loyal clients.

A quick look at Chodos’ career spells out just how significant his deals have been. Chodos, for instance, once closed a 411,000-square-foot lease for Jenner & Block LP, a 400,000-square-foot headquarters relocation for Sara Lee Corporation and a 217,000-square-foot lease restructure for Schiff Hardin.

Thanks in part to these big deals, Chodos has been an Office Broker of the Year nine  times at the Chicago Commercial Real Estate Awards event. He was also the 2005 winner of the NAIOP Suburban Office Transaction of the Year award, an honor he won thanks to his big Sara Lee headquarters relocation deal.

Chodos’ peers point to his tenacious negotiation style and market knowledge as two reasons for his success. They also credit his devotion to his clients; Chodos isn’t satisfied until he’s landed the best deal terms for his clients.

Outside of his career, Chodos hasn’t hesitated to support his community. He is a member of the board of directors and executive committee for Junior Achievement of Chicago. He also sits on the board of directors for the Chicago Central Area Committee and The American Red Cross.

Chodos supports his industry, too. He is a member of Colliers’ Executive Committee and a member of both SIOR and COLBA, the Chicago Office Leasing Brokers Association. He’s active, too, with the Executives Club of Chicago and the Economic Club of Chicago.

Paul Fisher

We may be on the verge of seeing the commonly understood expectation of the scope of liability under so-called “bad boy” guaranties in real estate loans being blown apart, with enormous implications to all parties in the real estate business.

There are two recent cases decided in Michigan that have held that one of the events triggering full recourse liability to the guarantor, based on the express terms of the loan documents, is the failure of the borrowing entity to remain solvent and to pay its debts as they become due. The cases are Wells Fargo Bank v. Cherryland Mall and David Schostak, decided by a Michigan state appellate court, and 51382 Gratiot Avenue Holdings v. Chesterfield Development Company and John D’Amico, decided by the Federal District Court, Eastern District.

The provisions in the loan documents in these cases are virtually identical to the triggering language in almost all CMBS loans and real estate loans that are made to “single purpose entities” (SPEs). These loans are likely in the hundreds of billions of dollars and they touch virtually every major developer and lender in the United States, as well as the attorneys representing them and loan originators and others.

One of the essential elements of CMBS loans and loans to SPEs is that the mortgaged asset is isolated from all other endeavors, creditors and liens other than nominal trade debt. Thus the loan documents in these loans will typically require that the borrowing entity be, at all times a “single purpose entity.” This is generally known as the separatedness covenant. Another essential element is that recourse against the guarantor is limited so that only in the case of specific acts and events will there be recourse liability. In a subset of these acts and events, liability for the entire debt (as opposed to just the damage caused by the act or event) will be triggered. As the term “bad boy guaranty” suggests, some type of bad act is commonly thought to be necessary as the trigger. Beware though what is commonly thought!

One of these triggering events in these loans is typically the failure of the borrower to remain an SPE. The standard definition of a single purpose entity used in CMBS loans and approved by the rating agencies is that the borrower must remain solvent and that it must pay its debts as they come due from its own assets. Note that, despite conventional thinking to the contrary, this standard definition does not say that the failure to remain solvent must be caused by some act or omission of the borrower or the guarantor or anyone associated with them. With a dramatic decline in real estate values, a substantial number of real estate borrowers are now insolvent. Likewise, despite conventional thinking to the contrary, the standard definition does not exclude the very mortgage debt that was the subject of the guaranty from the debts to be paid as they become due. As we know, a substantial number of real estate borrowers have not and will not pay their mortgage loans because the value of the property is now less than the mortgage debt. The conventional thinking has been that if a non-recourse loan was not paid but the borrower either voluntarily gave the lender a deed or didn’t resist a foreclosure and the borrower did not do some bad act to thwart the lender’s right to the property and the income from it, such as file a bankruptcy or collusively assist a bankruptcy filing, the guarantor would avoid the trigger and would not be liable. The holding in these cases directly contradicts that conventional thinking.

In the Cherryland case, the borrower stopped making mortgage payment and the lender foreclosed by advertisement or non-judicially. The borrower made no attempt to stop or interfere with the foreclosure sale. The day after the sale, the lender filed suit for a deficiency against the guarantor citing the trigger based on failure to remain an SPE, which in turn required that the borrower remain solvent and pay its debts as they become due. The guarantor claimed that neither the borrower nor guarantor had taken money improperly out of the project or done any other bad act. The Court, however, said it is unambiguous that no bad act is required in determining whether the borrower is solvent and whether it has paid its debts as they become due.  The Court said “[W]e recognize that our interpretation seems incongruent with the perceived nature of a nonrecourse debt and are cognizant of the [Commercial Mortgage Security Association’s] arguments and calculations that, if accurate, indicate economic disaster for the business community …” However, unambiguous language in a contract is enforced as it is written and words are taken in their common meaning, not as a party claims they were intended to be interpreted. The guarantor and Commercial Mortgage Security Association also said it would violate public policy to come to a conclusion that would upend the common understanding that the trigger required a bad act. The Court said public policy is made by the Legislature and not the Courts, and there is no evidence that enforcing this contract language as written is against a public policy of the Legislature.

In the Chesterfield case, after the borrower stopped making payments on the loan, the lender filed a foreclosure action that included a separate claim under the guaranty for the deficiency based on the trigger that the borrower must remain solvent and pay its debts as they become due. The guarantor said that surely this very mortgage debt can’t be one of the debts that was meant by this provision because to do so would defeat the purpose of the non-recourse provisions and nature of the loan. The Court however said there is nothing ambiguous about the term “its debts” and nothing to support excluding this mortgage debt from the term. The guarantor further argued that the effect of holding that the trigger had occurred would be that the exception to the non-recourse provisions would swallow the rule. The Court rejected the argument. As an indication of the certainty that the guarantor and its lawyers had that the Court could not possibly interpret the language to mean what it says, they argued that the result was “extremely absurd,” “ridiculous” and “draconian.”

Barring a reversal on appeal, what do these cases mean to you? Since they are the first reported cases interpreting these specific provisions defining an SPE by reference to the borrower remaining solvent and paying its debts as they come due, they are likely to be followed widely. One result is that a huge volume of these loans would be in default and the guarantors who previously expected not to have personal liability would in fact have personal liability for the entire debt. Not only would this be the case with loans that have not yet been foreclosed, but even the guaranties on those loans previously foreclosed or where a deed in lieu had been given could be pursued unless the lender had given a broad release in favor of the guarantor.

In some cases it might be better for a guarantor exposed in this fashion to inject equity into the borrower to avoid the insolvency and allow the borrower to continue to make payments, although that may just be making the death a bit slower. In many cases, parties who signed these guaranties signed them on many transactions, so some guarantors may find themselves insolvent as a result of recourse liability being triggered. All of the guarantors affected would have to restate financial statements, which might possibly trigger other defaults for misrepresenting their financial position. Lawyers will have to counsel their clients (where they are lenders) that they may have guaranty claims whether or not they expected to have them and (where they are borrowers/guarantors) that they might have exposure where they expected not to have exposure and in many cases were advised by their lawyers that they wouldn’t have exposure unless they committed a bad act. There would also potentially be no incentive for a borrower and guarantor to cooperate in a foreclosure or to make a voluntary deed to the lender unless the lender agreed to give a release to the guarantor. Where a guarantor has substantial assets, it might be a better strategy for the lender to refuse to give a release and deal with the contested foreclosure or bankruptcy filing but in response it might also be a reason for the borrower and guarantor to divert funds from the project or otherwise commit bad acts since full recourse would already exist.

If these decisions stand on appeal and are followed generally, the CMBS market, already weak, and a large part of the real estate finance market beyond the CMBS market would be upended. All transactions in the future would require specific negotiation and revised language to avoid the results discussed here and the revised language and structure would (in the case of the CMBS loans) require rating agency blessing that in turn would require that they can get a legal opinion that the new provisions in the SPE definition replacing or modifying the provisions that the borrower remain solvent and pay its debts as they come due would not diminish the benefits in a bankruptcy proceeding of having an SPE borrower.

It would be a good idea for all parties potentially affected by this development to go back and read their documents. While the language discussed is widespread, you can only determine how it affects you by checking your documents.

Paul Fisher is a partner with Chicago law firm McGuireWoods LLP. He can be reached at 312-849-8244 or by e-mail at pfisher@mcquirewoods.com.

The luxury multifamily community will be located at 360 W. Hubbard St. in Chicago’s River North neighborhood, across the street from the East Bank Club. This latest project adds to the more than 17,000 residential units developed by The Habitat Company in its 40-year history. Bentall Kennedy represents its clients, an institutional investor and MEPT, a $5.4 billion real estate equity fund, in the transaction.

The rental residences will be smoke-free and will include top-of-the-market finishes, amenities and services, including 29,000 square feet of indoor and outdoor amenity space to accommodate year-round activities. The development will be seeking LEED Silver certification under the Leadership in Energy and Environmental Design system of the U.S. Green Building Council.

The project’s architect is Solomon, Cordwell, Buenz & Associates, which has designed many residential buildings around Chicago, including The Habitat Company’s Kingsbury Plaza development located across the street. The general contractor for the development is James McHugh Construction Co.

Upon its completion in late 2013, the development will be managed by The Habitat Company. The Habitat Company currently manages for its own account and for third parties over $2 billion of assets comprised of more than 20,000 residential units of market rate, affordable, condominium, student and public housing units in Illinois and four other states.

John Jaeger, Dan Cohen and Carrie Houck of CBRE’s Multi-Housing Group and John Clifford, Peter Marino, and Jesse Karasik of CBRE’s Capital Markets Debt & Equity Finance Group worked in tandem to raise financing for this development on behalf of Habitat.

When combined with its recent acquisition of 480-unit and 360-unit multifamily assets in Ann Arbor, Michigan, The Habitat Company concluded transactions in December having a total value of close to one-quarter of a billion dollars.

The remaining end cap is ideal for complementary uses that would benefit from the demographics of the Buy Buy and Petsmart shopper as well as the 700 parents of the British School students located directly across the street. Those tenants include fashion, sporting attire and fast casual dining.

Structured remains active in the Halsted Triangle neighborhood and is a leader in the Halsted Triangle Owners Association, which is committed to advancing the development and interests of the entire area.

Structured advanced the development of the site after its partner, Commonfund of Wilton, Conn., withdrew from the LLC. Structured paid off the existing PNC loan through a refinancing provided by The Private Bank in the amount of $14 million.

Structured Development was formed in January 2002 to pursue real estate development opportunities. Leveraging its vast experience in the real estate market, Structured Development engages in complex real estate transactions, which include large mixed-use centers, urban infill, and historic renovation projects.

Goldstein brings more than 10 years experience in commercial real estate development, sales, management and analysis to his new position. He also brings more than 17 years as consultant, expert witness and appraiser for the financial industry.

According to company president Dale Strauss, “Goldstein brings the type of depth and experience that is representative of Strauss Realty. We’re pleased that he has joined our team. ”

Strauss adds that as CBD analyst, Goldstein will focus on the Chicago Loop commercial properties for sale and purchase as well as redevelopment projects.

“Goldstein’s previous experience as a consultant and court-qualified expert in financial matters will be of considerable resource to our existing and new clients,” Strauss said.