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.
5 comments:
Oh, how accurate you are, Gary... "...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,..."
And what will happen to the crooked politicians who pushed this foolish Taj Mahal through when it goes belly-up? It WILL go belly-up and it will require huge infusions of cash on a continual basis. What legal actions will be taken to hold the persons responsible for allowing the looming financial disaster?
We know the answer and it is the same old story of how poorly Marion County taxpayers have been treated by every politician they've ever elected.
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.
The above is keeping with the Too Big to Fail, Too Big to Jail concept of the Obama Administration.
Well consider this also in conjunction with our "Justice Department" the scene yesterday of reporters invading the San Bernadino's murder's apartment in CA. The reporters charged into the apartment, like Black Friday Shoppers when the doors open, trampling, and handling what should be Crime Scene Evidence.
"Why any lender would loan money to a project doomed to go bankrupt from the outset is something I will never understand"
I understand. It's either:
A. They're going to slice and dice and monetize the debt and make all their money on the fee end while offloading the garbage paper to doctors, widows and orphans...
or B. They got a guarantee from our little town and the little pinheads who run it and so want to be "big league."
One think I am sure of Gary is that the principal lenders will not be on the hook when this turd floats.
EB-5 projects are only authorized for Troubled Economic Areas. How on earth is downtown Indianapolis a Troubled Economic Area?
Don't you remember the City Way project qualified as an economically-depressed area? You can do an EB-5 project anywhere. The minimum investment is $500,000 per investor in an economically-depressed area versus $1 million in all other areas.
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