The 35-story Lexington Park, near Michigan Avenue and Cermak Road, was surrendered last week by its Irish developer through a deed-in-lieu of foreclosure. The private-equity venture that now owns the property acquired Corus Bank’s the distressed condo loans after the Chicago-based lender failed last fall.
Just three buyers have closed on Lexington Park’s 333 units, according to property records. The tower, 2138 S. Indiana Ave., was supposed to be ready for occupancy in 2008.
Limerick, Ireland-based Chieftain Group Ltd. borrowed $84 million from Corus in fall 2006 to finance the tower’s construction, and also obtained $10.6 million in financing from 47 individuals in Ireland, according to mortgages recorded in Cook County.
A Chieftain executive who had overseen the development declines to comment and referred questions to ST Residential LLC, a venture led by Greenwich, Conn.-based Starwood Capital Group and TPG Capital of Fort Worth, Texas.
“The building’s in strong hands,” says a spokesman for ST Residential. “We just took ownership last week, and we’re evaluating our next steps.”
The three sales that have closed are in a seven-story portion that consists of 36 lofts, sources say. Condos in the tower seemed to be gearing up for closings late last year, says one buyer, when a flood on an upper floor caused damage to units and the elevator shaft and further delayed the project.
In the past few months, the project’s Web site was taken down and Chieftain employees were no longer responsive, says Tom Kolek, who in fall 2006 put down a $15,000 earnest-money deposit for a $300,000 one-bedroom unit on the 18th floor.
“Nobody seems to have any information,” says Mr. Kolek, a 44-year-old IT professional who lives on the North Side and now wants his deposit returned.
A lawyer with Chieftain’s local law firm, Brown Udell Pomerantz & Delrahim Ltd., declines to comment.
About 55% of Lexington Park’s 333 units are under contract, according to data from Appraisal Research Counselors. But some of those units were bought by speculators when sales kicked off in 2006. The speculators are sure to walk away now rather than close, given the dramatic fall in condo values. Others buyers probably will no longer qualify for mortgages.
The lack of closings may be a blessing for ST Residential, which could convert the units to apartments or tear up the existing contracts and try to sell the units at discounted prices that reflect today’s market.
“The fact that closings have not taken place in the tower gives them more options,” says Gail Lissner, a vice-president with Chicago-based Appraisal Research. “Certainly it’s better to be in this situation with no closings rather than having 10 or 20 buyers in the tower.”
The ST Residential spokesman says the firm will notify buyers once its plans are determined.
Starwood and TPG in October won a bidding contest run by the Federal Deposit Insurance Corp. (FDIC) to acquire an equity interest in a new venture that holds Corus’ $4.5-billion portfolio of loans and real estate. The FDIC retains a 60% ownership stake in the venture, but the investors are managing the assets.
The transaction, which the firms described as one of the nation’s largest acquisitions of distressed commercial real estate, was valued at about $2.77 billion.
The Lexington Park mortgage was one of the biggest local Corus loans in that deal.
The development’s site was home to the Lexington Hotel for almost 100 years, from 1892 to 1980. The landmark hotel, which Mr. Capone used as his headquarters from 1928 to 1932, was demolished in 1995, according to the Chicago History Museum’s Electronic Encyclopedia of Chicago.
Mr. Rivera, a TV broadcaster, hosted a live television special in 1986 where he opened Mr. Capone’s vault. The much-hyped syndicated special, “The Mystery of Al Capone’s Vault,” yielded a huge viewership for Mr. Rivera, but he found only dirt and several empty bottles.
II …. Three reference articles
MGM CityCenter In Las Vegas And Lexington Park in Chicago illustrate luxury shadow inventory housing units, relates MyBudget360.
Anyone who was interested in Lexington Park’s lofts may want to check out the other Chicago lofts for sale as well.
Zachery Kouwe and Eric Dash in NY Times DealBook article Starwood Group Strikes Deal for Corus Assets (dated October 6, 2009), report on the FDIC Starwood Public Private Partnership, relating that the FDIC would sell about $4.5 billion of troubled real estate loans that it recently seized from Corus Bancshares to a group of private investment firms led by the Starwood Capital Group, the real estate development company run by Barry Sternlicht.
Under the terms of the complex deal, Starwood and its business partners agreed to pay $554 million for a 40 percent equity stake in the loan pool while the F.D.I.C. keeps a 60 percent stake worth $831.6 million.
The total purchase price of the transaction, including $1.4 billion of debt, comes to about $2.8 billion, or roughly 60 cents on the dollar, according to the F.D.I.C. Starwood plans to manage several foreclosed or soon-to-be-owned residential and office buildings seized by Corus after their borrowers defaulted. Private equity firms W.L. Ross & Company, TPG Capital, Perry Capital and several other smaller investors are also contributing cash to the deal.
The transaction is expected to close on Oct. 15. Barclays Capital advised the F.D.I.C. on the deal.
The F.D.I.C.’s stake in the loan pool will increase to 70 percent when and if the other investors double their money in a specified period of time. The deal also allows the F.D.I.C. to syndicate, or sell to other investors, up to 51 percent of the debt used to finance the acquisition of the loan pool.
The sale comes just weeks after regulators took over Corus, a lender based in Chicago that barreled into hot real estate markets like California and Southern Florida to finance luxury condominium projects. Its easy money helped propel the condo-buying craze that swept across the nation earlier this decade.
But when the mortgage market dried up, so did demand for many of the condominiums it financed. Corus was left holding billions of dollars in construction loans for projects that needed tenants. The resulting write-offs chipped away at its capital base, leading regulators to take over the bank in September.
Unable to sell the entire bank, regulators decided to effectively divide Corus into two. In early September, a handful of branches and about $6.6 billion in deposits were sold to MB Financial, another bank with headquarters in Chicago. At the same time, they began marketing its large portfolio of troubled construction loans to a number of private equity firms and so-called vulture investors.
Federal regulators are betting the complex transaction will soften the blow to the F.D.I.C. deposit insurance fund, which dipped into red ink last month after heading into the crisis with more than $50 billion in reserve.
By providing guaranteed financing to the buyers, the government hopes that they will be able finish developing the condo projects or turn them into apartments or hotels. The F.D.I.C., therefore, can avoid liquidating the assets in a fire sale that could cripple the industry-backed fund even more.
Although some banks may use the transaction to start marking down the value of similar loans on their books, most can probably avoid taking a big earnings hit. One reason is that banks typically carry construction loans in their held-to-maturity accounts, which are not subject to mark-to-market accounting. Another is that the guaranteed financing makes the transaction unique.
Still, the deal could herald a future loan sale strategy for the F.D.I.C. as it accumulates billions of dollars of assets from seized banks. There were no shortage of buyers, who often teamed up to submit bids. Indeed, the Starwood group beat out a total of eight other bidders including a number of high-proile investors with its winning offer. Among them: Thomas J. Barrack of Colony Capital; Jay Sugarman of iStar Financial; the New York developer Stephen M. Ross, and Lubert-Adler, a big real estate investment firm in Philadelphia.
III. MGM spent $8.5 billion to build the CityCenter complex on the Las Vegas Strip; that is truly an insane amount of capital. Yahoo Finance reports, MGM, is loosing $3.56 per share; yet remarkably its stock is up 50% in the last year. Could it be, might it be, that MGM will go bankrupt soon? Personally, I consider it to be a good stock for an insurance company to go short on; I personally am invested in gold coins.
Zachery Kouwe and Eric Dash in NY Times DealBook article Starwood Group Strikes Deal for Corus Assets (dated October 6, 2009), report on the FDIC/Starwood Public Private Partnership, relating that the FDIC would sell about $4.5 billion of troubled real estate loans that it recently seized from Corus Bancshares to a group of private investment firms led by the Starwood Capital Group, the real estate development company run by Barry Sternlicht … So the FDIC has an ongoing interest in the Lexington Park property as it underwrote it’s acquisition … I thought I would never see the day when the Federal Government would be in the luxury condo sale or luxury condo rental business.
We are witnessing state-corporatism, that is state corporate rule for the benefit of the elite of business and the elite in government; what a travesty!
Any way good riddance to the Irish developer; many banks in Ireland finance residential properties world-wide; just as banks in Spain did; now these are largely ghost properties. Ireland has or will have to nationalize its banks, and press their debt load on to the public as a type of sovereign debt. And here recently, Spain took over a major cajas, that is Catholic savings bank, that made massive numbers of home loans; so yes, here to more sovereign debt load.
And the risk of sovereign debt default is causing the Euro, FXE, and the European stocks, FEZ, and the European Financials, EUFN, to fall lower as I write.
John Hara of Hara Research just wrote the article Into the Abyss: The Coming Cycle of Debt Deflation. Debt deflation is the contraction and crisis that follows credit expansion. Mr. Hara relates one of the most famous quotations of Austrian economist Ludwig von Mises is that “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency involved.”
So yes, look for a global financial collapse coming soon.
EconomicReview Journal 
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