Market Conditions: Bank Files for Foreclosure On Pearson on the Park: 222 E. Pearson
Crain’s reports that PrivateBank & Trust Co. has filed to foreclose on the 219-unit conversion Pearson on the Park at 222 E. Pearson in the Gold Coast.
We have chattered about this building in the past. See our prior discussion and pictures here.
From Crain’s:
The bank alleges that the developer of the project at 222 E. Pearson St., an entity formed by Ganesan Visvabharathy, missed its February loan payment and failed to pay off the $6.8-million loan balance when it came due in March.
Attempts to reach Mr. Visvabharathy, who has a Ph.D. and is better known as Dr. Vish, were unsuccessful. The developer paid $46.6 million for the building in July 2005, when it was an apartment building. He borrowed $52.5 million from Hypo Real Estate Capital Corp. and $7.5 million from American Mortgage Acceptance Corp. to finance the purchase and his plan to convert the apartments to condos.
Those loans came due in August of 2007, and he refinanced the development with a new $17-million loan from PrivateBank. The loan carried interest of the prime rate plus 1%, or 7.25%, whichever is greater, according to a document included with the foreclosure suit, which was filed this month in Cook County Circuit Court.
To secure the loan, Dr. Vish pledged 55 acres of undeveloped land in downstate Mount Vernon and signed a personal guarantee. The loan originally matured last November but was extended to March.
The developer asked for another extension, to March 2010, a request PrivateBank had agreed to consider based on certain conditions, according to a letter the bank’s attorney sent Dr. Vish in April. Now, however, the bank just wants its money back.
Pearson on the Park is 80% sold but Crain’s reports that just 3 units have sold this year.
In recent months, the developer has cut prices in condos at Pearson on the Park by an average of 13%, but it’s unclear whether that will be enough to goose sales in the building. Downtown condo converters sold just 17 units in the first quarter, down from 62 in the year-earlier period, according to Appraisal Research Counselors, a Chicago-based consulting firm.
Streeterville condo conversion faces foreclosure [Crain’s Chicago Business, Alby Gallun, July 29, 2009]
“Pearson on the Park is 80%”
How many of that 80% is back on the market or renting?
There will be a lot more of this to come. This is the tip of the iceberg. Right now all the banks are in “extend and pretend” mode. Banks don’t have the capacity to take back massive amounts of properties so they simply keep extending the debt and hope the problems fix themselves. This is obviously not going to happen and the banks will eventually have to take their pain.
personal guarantee…ouch, guess he can’t just lqiuidate the LLC and run.
Does anyone know who this DR. V is…does he have $7mil for the bank to go after.
Missed a payment in Feb and didn’t pay off the loan in March and they’re foreclosing only now? Is this typical for developer loans?
“Missed a payment in Feb and didn’t pay off the loan in March and they’re foreclosing only now? Is this typical for developer loans?”
Is it atypical for any mortgage loan? I don’t think so–you have to file notice and wait; seems about the right amount of time. HD?
Developer Fail
This is a shame; the building is in a perfect location. I’m kind of amazed that even with 80% sold the developer went bankrupt–you’d think at that point he could just completely firesale prices and pay it back. Maybe developers’ margins aren’t so wide as we think?
As for the building, it really wasn’t a good conversion… then again, so few are. This was the first building I considered buying in when I went on the market in November of 2007 (I can’t believe it’s been so long! But it has.) The resales were insane–flippers asking for 100% profit in a year.
Every bank, every loss mitigation department is different. Word on the street is that Countrywide and B of A are taking up to a year to file foreclosure after missing payments…..I’m not as familiar with construction loan defaults (although as the CRE bust grows I’m sure I will get more experience) but nothing out of the ordinary about a Feb to July delay before filing suit, especially if the developer has been trying to work something out with the lender.
on a related note, a few days ago, I saw a bank (which I will nameless) dismiss a foreclosure case before even obtaining judgment. The property is currently lived in, has a mortgage in the 100’s and is on the west side (55 blocks directly west of the loop). The lender gave no reason for dismissing the suit after 18 months. The REO lawyers I’ve spoken with opined that the back taxes, insurance and legal fees associated with the foreclosure likely exceed the resale value of the property. So the tenants gets to live there for free as long as he continues to pay the real estate taxes. Of course if he tries to sell the property the liens still attach, but, free rent forever or until he walks away. I’ve heard stories in the news about lenders refusing to take possession but to see it happen so close to home….it’s a messed up world out there.
“Is it atypical for any mortgage loan? I don’t think so–you have to file notice and wait; seems about the right amount of time. HD?”
Thanks HD and anon!
“I’m kind of amazed that even with 80% sold the developer went bankrupt–you’d think at that point he could just completely firesale prices and pay it back. Maybe developers’ margins aren’t so wide as we think?”
They got to keep a piece of each of the sales, so that the 80% sold wasn’t all going to pay back the loan. EG–if the sale price was $450k, the release price was (may have been) $380k, so the bank gets $380k and $70k goes to brokers/investors/developer.
I’d be fairly certain that the release prices were set to pay off the $52.5mm loan with something like 80% sold, but he re-fi’d with takes it out of any “typical” loan regime, altho it was probably close to a “permanent” financing deal based on the expected sales. Given the pledge of additional collateral and the personal g’tee (assuming a real guarantee and not a standard carveout) and the mid-07 date of the loan, I’d expect that it was basically equal in amount to all of Dr. Vish’s remaining interest in the building and would require near complete sell out to pay off.
HD, you could tell the bank to pay me to live in Austin and I still wouldn’t! Different strokes…
“Of course if he tries to sell the property the liens still attach, but, free rent forever or until he walks away.”
He should just wait for the bank, likely in dire straits, to go under or get taken over by another bank. Then sue them claiming they lost your title or something.
In the paperwork shuffle of bank failures and acquisitions, while not a lawyer I suspect theres a good chance of the squatter getting a clear title after five to ten years.
anyone want ot bet whats next,
my guess is 3033 N Sheridan
“Then sue them claiming they lost your title”
It’s not like car loans; the buyer HAS title, per the recorded deed, subject to the lien of the mortgage.
The claim to make–and it has already indirectly happened in various ways in many places–is that the lender does not have the *note* and can’t enforce the lien. Still, only a fool would accept title subject to an unsatisfied mortgage w/o deducting the unpaid amount for the purchase price. And the “owner” would be wise not to kick the sleeping dog–rent the place out instead of selling, at least until after the maturity date of the mortgage. Just make sure to pay the taxes and not record anything.
why not it’s sister project at 2930 sheridan – it’s been around a little longer.
20 years for adverse possession in IL (thats the usual topic for the first legal writing memo for every IL law student ) so there’s no way to squat for 5 to 10 years and get clear title. And not if there is a contract b/w the parties which there is.
Furthermore, there’s been case law in IL recently which says that the banks don’t need to produce the original notes, photocopies are just fine, and it doesn’t matter much how the Plaintiff came into possession in the long line of assignments….
The owner is better off buying the back taxes and getting a tax deed from himself wiping away the bank liens …
“In the paperwork shuffle of bank failures and acquisitions, while not a lawyer I suspect theres a good chance of the squatter getting a clear title after five to ten years.”
I live ( rent ) at 222 East Pearson
I’m not involved with the developer
But think its a great location and its one
of only a few buildings that allow large dogs
Too bad the developer did not do more with the halls and lobby
Rumor has it there are 70 plus rentals, 20 resales and 22 still for sale by developer in the building, making it nearly impossible to get financing
There’s no adverse possession of a loan, HD. As anon (tfo) pointed out, the “squatter” has title.
The question is only what the statute of limitations is on suing on the note. They are certainly on notice that the “squatter” is not paying. How long until they can no longer use the courts to get him/her to pay?
It sure looks to me like the MLS sale prices are not accurate representations of the actual cost to the buyers. Most of the sales had parking included yet the sale prices reported in the mls appear to include the parking price. A look at the deeds show that they reflect a lower purchase price than the mls shows.
Perhaps, the mls prices were on the closing statements and large credits were later deducted for free parking? There are no separate deeds (or PINs, that I could find) for parking, so it needs further investigation.
BTW, It was apparently with great foresight that the developer chose the business name of “222 E PEARSON REO LLC” at the start of the conversion.
“And not if there is a contract b/w the parties which there is. ”
I know there is no adverse possession of a note. See above. Squatter doesn’t have title until they live there for 20 years open and notoriously along with a few other elements…
“The question is only what the statute of limitations is on suing on the note. They are certainly on notice that the “squatter” is not paying. How long until they can no longer use the courts to get him/her to pay?”
The statute of limitations for a written K in IL is 10 years from the date of the breach. However, even if the SOL expires on the note the lien still attaches to the property. If the seller tries to sell he’s going to need the lienholder to sign off on that and believe me the lienholder (most likely the federal government in the future) will be asking for a return of their money…..
Once the note/contract expires though the lienholder, if they had any sense, would realize their options are limited. They don’t have an enforceable contract anymore. All they can do is either wait for their lien to expire in ten more years or accept a cash payment to relinquish the lien.
Chances are that cash payment could be far less than the actual amount of the lien. Imagine I either give you $5k today, or I can just wait another ten years and you get nothing. Choice is up to the lienholder and the rational choice would be to accept the token offer/settlement.
Anyone notice what’s going on with the Macroshares Major Metro Housing ETFs? The up shares (UMM) are up 13% just today. They have risen from a low of 13.35 to 22.60 in a couple of weeks. That’s pretty bullish. With that the threat of early termination has significantly diminished, making these a great way to play the housing market. For all you Cassandras out there, here is your opportunity.
Jameson has a sign near the entrance that says 90% sold. I think it might have gone to 95% at one point. It’s also had that stupid “condos for sale” banner hanging on it’s side for years now. As discussed in earlier cribchatter posts, these units are small and don’t have the best layout. You can get much more for the same amount of money in the buildings literally right next to it on Chestnut, Delaware and Dewitt.
The developer bought at the peak and is now competing with flippers, sucks to be them.
The CS numbers are being spun by the typical shills and it is impacting sentiment. The set-up for a fall this fall/winter (reflected starting in say, Dec 2009 index release) appears obvious. Current sentiment will get crushed later.
In the meantime, expect another few months of this nonsense. There will be an even better opportunity of shorting UMM (or buying DMM) to come.
Steve Heitman should be loading up on UMM. Maybe he’s driving it up single handedly.
Bob, liens don’t expire after 20 years. I think you’re referring to judgments expiring after 20 years. IAAL!
Liens expire in 7 years (mechanics’ liens expire in 2).
If the person pays their taxes, they should have no fear of a tax lien. And if the bank does not foreclose, they should be free whenever the lien expires of the SOL runs on enforcing the note, whichever comes later.
Unless I’m missing something.
And is the SOL on a contract in Illinois really 10 years? That is laughably long; I can’t believe anyone does business at all in Illinois if that’s the case–it leaves so much uncertainty.
Mortgage (735 ILCS 5/13-116) If the mortgage has a due date on its face, then the lien expires 20 years after the due date. If there is no due date, then the mortgage expires 30 years after the date of the instrument. Note that a foreclosure of a mortgage must be commenced within ten years after the right to bring the action accrues. (735 ILCS 5/13-115).
10 years SOL for written K and 5 years for unwritten or oral K.
wow. This strikes me as really archaic–things should move a lot faster than that. But then, maybe it’s the same everywhere.
” they should be free whenever the lien expires ”
Lien doesn’t “expire” prior to maturity date of the mortgage, usu. 30 years.
Commercial real estate loan defaults are the next $3 trillion problem. Very difficult to refinance these short-term loans when term matures; lucky owners are able to convince lenders to extend loans in lieu of foreclosure at higher rate with more owner equity and/or personal guarantees attached. Unlucky owners lose their buildings/sites; unlucky lenders are stuck with foreclosed property because new owners with deep-pocket equity funds are rare.
There are some Chicago-based vulture funds organized to pursue Chicago’s prime foreclosures, funded by deep pocket wealthy folks, but much of what was developed in past five years was based upon efforvescent Bubble economics of ever increasing property values and rents. Expect a more significant crash that current home mortgage bubble, with a great deal of vacant and derelict retail property here in Chicago. Class A and Class B office buildings are more likely to receive refinancing, as well as Class A industrial properties located in the outer suburbs. Note recent bankrupcy filings of various Opus Corporation entitites.