Friday, December 04, 2015
No Big Surprise 360 Market Contractor Is Feuding With Subcontractors Already
It's interesting that local contractors didn't put up a fuss when Flaherty & Collins chose an Australian construction company, Lend Lease, to act as general contractor for the 28-story, $121 million luxury apartment building it's constructing at 360 Market Street with more than $20 million in subsidies from the City of Indianapolis. The Indianapolis Star says several subcontractors, including Midwest Constructors, LLC, have filed liens for non-payment during the first year of work on the project. Midwest Constructors is seeking payment for $2.6 million it says it's owed for work erecting the tower crane, site excavation and foundation work. Flaherty & Collins tells the Star the dispute is between Lend Lease and subcontractors because it has paid nearly $11 million to the general contractor to date.
It didn't take much research on Lend Lease to learn the company was the subject of a fraud scheme investigation in 2012 led by former New York federal prosecutor Loretta Lynch, the current Attorney General of the United States. Lynch accused Lend Lease of over billing clients, including government agencies and private developers, over nearly a decade. Lend Lease agreed to pay $56 million in fines and restitution to avoid facing criminal charges. The company's former head, James Abadie, pleaded guilty to conspiracy to commit wire fraud as part of a plea agreement under which he avoided jail time. Abadie admitted the company added one to two hours of extra time to its laborers time sheets every day and authorized labor foremen to take vacation and holidays while filling out their time sheets as though they worked. Federal prosecutors also accused the company of evading government requirements for hiring minority and female-owned businesses.
This project is going to be interesting to see play out. I've said it before, and I will say it again. There is no way this costly, high-rise tower will ever generate anywhere near the cash flow that will be required to operate it as a going concern. They will never find enough people who can afford to pay the rents a building of that caliber would command in downtown Chicago. Why any lender would loan money to a project doomed to go bankrupt from the outset is something I will never understand, although this cycle of lending for large construction projects doomed to fail from the outset repeats itself over and over again in this country. Flaherty & Collins will earn big development fees on the project, and the bankruptcy of the LLC that owns the property won't take a dime from the developer's pockets. I suspect these wealthy Chinese investors who are dumping tens of millions of dollars into the project as part of the EB-5 program under which they're able to buy green cards in exchange for a minimum $500,000 investment in the project is viewed as a cost of getting permanent residency in this country. Maybe their lenders figure the foreign investors are the ones who will bear the losses from the project when it goes bankrupt and gets snatched up on the cheap by a subsequent owner.