Bank of America has pulled the plug on Chicago’s high-profile Waterview Tower with its filing of a foreclosure lawsuit against the 90-story condominium and hotel tower overlooking the Chicago River. The bank has sued to collect $20 million from the developer, an affiliate of Chicago-based Teng & Associates, which stopped construction last year.
The building’s troubles came to a head when Hong Kong-based luxury hotel chain Shangri-La Hotels & Resorts scrapped its plans for a 200-room hotel at 111 West Wacker Drive. Various contracts then filed claims totaling $85 million against the developer.
Bank of America’s lawsuit illustrates two critical rules of successful real estate development. First is the risk of starting a project without construction financing in place — in this case, funding a project with a short-term bridge loan while the developer was shopping around for a construction loan. Second is the issue of first loss position in terms of collecting money owed when a borrower defaults. Bank of America is in a first loss position since the contractors all signed their agreements before the bank extended the loan. This means their contracts could supersede the bank’s.