(Crain’s) — Despite worries of a flagging economy, discounts and promotions lured more shoppers than usual to suburban Chicago malls on Black Friday.

In the early morning, foot traffic was sparse along Michigan Avenue, where discounts were harder to find, but it began picking up around lunchtime.

Woodfield Mall in Schaumburg saw a 4% to 10% increase in the number of cars in the parking lot this year, said Marc Strich, the mall’s general manager.

“People are definitely looking for deals and value this year, and there are more early bird specials,” he says. “These are very uncertain times, but we are confidently optimistic that the strong business (today) will continue throughout the holiday season.”

Shopper turnout has exceeded expectations at the Westfield Chicago Ridge Mall, says Lia Osburn, the marketing director. A couple hundred shoppers lined up outside the mall at midnight for the opening of the Disney Store and KB Toys, she says.

Gurnee Mills Mall was “packed at midnight,” according to Randy Ebertowski, the general manager.

“The traffic is on track if not slightly above previous years,” he says. “Most importantly, people have a lot of shopping bags and one tenant said their sales before noon had already exceeded last year. There are a lot of exceptional deals that shoppers are taking advantage of this year.”

Stores are offering discounts as high as 75%, he says.

Back downtown, large discounts kept the Disney Store on Michigan Avenue busy on Friday morning. Vernon Gordon, who was shopping in Water Tower with his wife, said she found an $80 top from Ann Taylor for $8.

“If you don’t listen to all the doom and gloom, there is not anything different about this year,” he says.

Elijah Cooley says he usually doesn’t shop the day after Thanksgiving but drove downtown from Alsip in search of deals.

“I’ve heard they were going to have great deals and came downtown looking for the top brands,” he says. “There are a lot of price breaks today.”

But several area shoppers and salespeople said traffic was a little light when the Macy’s opened in Water Tower at 5 a.m. Friday.

“It seems like there are fewer shoppers than usual and the escalators are usually more packed,” says Diane Carpenter, a Bolingbrook resident shopping downtown with her sister and nephew.

AIM Realty Group Chicago

(Crain’s) — McGrath Automotive Group has sold the site of its former Pontiac Buick GMC dealership in St. Charles for $5.1 million to the dealer’s new operator.

The St. Charles property at 1421 E. Main St. was sold to an affiliate of the dealership’s new owner, Frederick “Rick” Weissberg, who bought the dealership early this year and closed on the land last month after exercising a purchase option in the lease.

“It’s a great time to make investments in the future,” Mr. Weissberg says. “The automotive business is going to come back. It’s a business of cycles, and we’re at the bottom now. We need to be patient; it’s going to come back.”

Mr. Weissberg has renamed the dealership St. Charles Pontiac Buick GMC, and also completed an extensive renovation of the property earlier this year.

For McGrath, the sale eliminated the only American brands in its stable of four dealerships. The deal also provides a capital infusion as the firm prepares to quadruple the size of its Honda dealership in Elgin when it moves next summer to a new auto mall, says McGrath President Gary McGrath, whose brothers Mike and Scott are also local auto dealers.

McGrath Automotive has an Acura dealership in Morton Grove, an Audi dealership in Glenview and Honda dealerships in Elgin and in St. Charles right next to its former Pontiac Buick GMC location.

The Elgin Honda dealership at 955 E. Chicago St. is to move to the planned Randall/90 Auto Mall in Elgin at the intersection of Randall Road and Interstate 90. Mr. McGrath expects to break ground in the next 30 days on the 8-acre site his firm acquired from the mall’s developer, Mokena-based Location Finders International Inc. McGrath’s new Honda dealership will be 80,000 square feet, four times the size of its current Elgin dealership, Mr. McGrath says.

“It’s a big capital outlay,” says Mr. McGrath, whose firm is the only one so far to commit to the auto mall, which Elgin’s city council approved in September 2007. “You couldn’t ask for a better location. . . .I think it’s well worth the investment.”

AIM Realty Group Chicago

(AP) — Chicago home prices fell less than a widely watched national index, which on Tuesday showed prices dropping across the county by the sharpest annual rate on record in the third quarter.

The Standard & Poor’s/Case-Shiller U.S. National Home Price Index released Tuesday tumbled a record 16.6 percent during the quarter from the same period a year ago. Prices are at levels not seen since the first quarter of 2004.

Chicago-area prices were down 10.1 percent in September compared with September 2007.

The monthly indices also clocked in record declines. The 20-city index fell by 17.4 percent in September compared with a year ago, the largest drop since its inception in 2000. The 10-city index plunged 18.6 percent, the biggest decline in its 21-year history.

No city in the Case-Shiller 20-city index saw annual price gains in September — for the sixth straight month.

AIM Realty Group Chicago

General Growth moves to prevent low offer
General Growth Properties Inc. has sweetened the terms of its “poison pill” for existing shareholders in a bid to prevent a lowball offer for the troubled shopping mall owner. The Chicago-based real estate investment trust on Thursday said it has extended for two years, until Nov. 18, 2010, its shareholder rights’ plan, a device to make hostile takeovers more expensive by increasing the amount of outstanding stock. General Growth’s plan would be triggered if a hostile bidder acquires 15% of the company. In effect, shareholders have the right to buy common stock from the company at half the market value. General Growth reduced the price of each right by 29%, to $105, which would give shareholders common stock worth $210.

Private-equity firm boosts space
Private-equity firm Water Street Healthcare Partners LLC is expanding its space at 333 W. Wacker Drive to 14,198 square feet. The firm, which currently has 8,029 square feet on the 16th floor, will move to the 28th floor in the building, owned by Hines Interests L.P. Water Street signed an eight-year lease that expires in late 2016, according to Steve Levitas of Colliers Bennett & Kahnweiler Inc., who represented the firm, which manages investments worth more than $1 billion.

Jones Lang now leasing agent for Itasca building
Jones Lang LaSalle Inc. recently became the leasing company for 2 Pierce Place, a 487,000-square-foot office building in northwest suburban Itasca that’s the headquarters of insurance broker Arthur J. Gallagher & Co. The building, Gallagher Centre, is 72% leased, with a single block of 101,000 square feet that is vacant, says John Clark, a senior vice-president at Jones Lang, part of three-person leasing team with Rob Lundin and Jeff Shay. Gallagher occupies 60% of the building, which is owned and managed by Georgia-based Piedmont Office Realty Trust.

Firm begins coverage of Inland with ‘buy’ rating
Cantor Fitzgerald has begun coverage of Inland Real Estate Corp., rating the retail real estate investment trust a “buy.” In a report Thursday, New York-based Cantor said the rating is “based on a portfolio and business model capable of providing consistent long-term growth and operating performance, through both economic and real estate cycles which, in turn, should support stable/rising longer-term underlying asset valuations.” Cantor also says Inland has the cash flow to maintain its dividend. Cantor has a price target of $14 a share for Inland, whose stock closed Thursday at $8.74. Oak Brook-based Inland owns and operates mainly neighborhood shopping centers, many of them grocery-anchored.

AIM Realty Group Chicago

(Crain’s) — Add the Thrush Cos. to the growing list of local condominium developers with loan problems.

A Thrush affiliate that once planned to develop as many as 164 condos on a West Loop site has defaulted on a $6.6-million loan to finance the property at the northwest corner of Madison Street and Racine Avenue, according to a lawsuit filed last week by the lender, Chicago-based New Century Bank.

The bank is suing George Thrush, founder and chairman of the Chicago-based development firm, who partially guaranteed the loan, which came due June 3, the complaint says.

Attempts to reach Mr. Thrush were unsuccessful. His attorney, Adam Glazer, declines to comment, saying he hasn’t seen the complaint.

The lawsuit reflects the growing pressure many developers are under as they try to sell off or refinance development sites amid an overbuilt condo market and the tightest lending climate in decades.

After scrapping its plans for the West Loop site, Thrush agreed earlier this year to sell the West Loop property to Arlington, Va.-based apartment investor AvalonBay Communities Inc.

The sale would have allowed Thrush to pay off some of the New Century loan, but the deal fell through a couple months ago, leaving Thrush with an illiquid asset and a lender demanding repayment.

Related story: Apartment investor in deal to buy W. Loop condo site

Founded by Mr. Thrush in 1980, Thrush has been one of the most active residential developers in Chicago, but the company has not escaped the downturn in the condo market. A Thrush joint venture recently hired Rick Levin & Associates Inc. to auction off 22 unsold units at Jazz on the Boulevard, a 137-unit condo and townhome development in the Kenwood neighborhood, according to the Chicago-based auctioneer.

And Thrush has yet to sell 20 units of a 132-unit condo development at 740 W. Fulton St. that opened last year, according to Appraisal Research Counselors, a Chicago-based consulting firm. A $38.5-million construction loan from Cole Taylor Bank that financed the project was scheduled to mature Nov. 1, according to a mortgage filed with the Cook County Recorder. The status of the loan is unclear; a Cole Taylor spokesman declines to comment.

New Century Bank isn’t the only lender trying to collect from Mr. Thrush. In May, Cincinnati-based Fifth Third Bank sued Mr. Thrush and other executives at his company over a $3.8-million revolving line of credit that the bank alleges is in default. The line of credit, which opened in 2006, matured on Jan. 31, after two extensions, and had a balance of $1.5 million as of May 1, according to the lawsuit, which was filed in U.S. District Court in Chicago.

The complaint does not explain the purpose of the credit line, which was provided to an entity called Thrush Investment Co. Mr. Thrush and his fellow executives guaranteed the loan, according to the complaint. In a court document, the executives deny that the credit line is in default. Mr. Glazer, the attorney, declines to comment further.

Mr. Thrush is on the hook for 25% of the principal balance, unpaid interest and fees on the New Century loan, according to the bank. In addition to a monetary judgment against Mr. Thrush, New Century has asked a judge to force him to turn over a personal financial statement and tax returns, according to the lawsuit, which was filed in Cook County Chancery Court.

“The longer it takes to obtain the complete financial information and copies of the income tax returns, the easier it becomes for (Mr. Thrush) to hide his assets from the Bank or to liquidate his assets and thus deprive the Bank of its right to be repaid under the Guaranty Agreement,” the complaint says.

AIM Realty Group Chicago

(Crain’s) — The developer of the 81-story Aqua tower is seeking a new buyer for a planned 225-plus room hotel in the downtown high-rise, about two months after the original buyer, Strategic Hotels & Resorts Inc., dropped out.

Magellan Development Group LLC has hired the Chicago office of CB Richard Ellis Inc. to sell roughly 16 floors of hotel space in the unfinished mixed-use skyscraper, part of the Lakeshore East development just north of Grant Park.

Rendering of Aqua

Chicago-based Strategic Hotels, the owner of the Fairmont Chicago next door, had wanted the space for an expansion of the Fairmont but scrapped the project in October, citing poor market conditions.

Related story: Fairmont owner pulls out of Aqua project

Indeed, CB Richard Ellis is trying to sell the hotel space at a particularly difficult time. Financing for new real estate projects has virtually evaporated amid the global financial crisis, and demand for hotel rooms is sliding. It’s anybody’s guess what’s happened to Chicago hotel prices this year because so few properties have changed hands, but it’s likely they have fallen since Strategic agreed to pay $84 million for the raw Aqua space in 2006.

The good news is that Chicago-based Magellan can be flexible on price because Strategic Hotels has forfeited a $28-million letter of credit it offered to secure its purchase contract. So Magellan could sell the space for as little as $56 million, representing a 33% discount, and the financial result would be the same.

That’s a deal the developer is willing to make, says Brian Gordon, vice-president of development at Magellan.

“Obviously, you’d always like to keep a couple dollars in your pocket, but we’re realistic and we are willing to put our money where our mouth is,” he says.

Designed by Chicago architect Jeanne Gang, the tower at 225 N. Columbus Drive will have 474 apartments and 264 condominiums. Buyers have signed contracts for all but 10 condos in the tower, Mr. Gordon says. The apartments will open next spring and closings on condo sales will begin in the fall.

Magellan, Lakeshore East’s master developer, is also considering dropping the hotel in Aqua altogether and filling the space instead with more apartments, Mr. Gordon says. He estimates the space could fit at least 200 apartments.

For now, however, Magellan is offering hotel investors the first floor of the building and floors 4 through 18, along with a 17,700-square-foot ballroom. The space could accommodate more than 300 hotel rooms, according to a CB Richard Ellis marketing brochure.

Tours of the building with prospective buyers start next week, and Mr. Gordon aims to have a contract for the space by the beginning of the year.

“But with this economy and the credit markets the way they are, you never know,” he says. “We’re seeing some exciting concepts and we hope one of the hotels plays out.”

AIM Realty Group Chicago

(Crain’s) — Donald Trump’s lawsuit against the menagerie of construction lenders for his riverfront tower is likely to be followed by more pre-emptive strikes by other developers.

Amid the prolonged credit crisis, such lawsuits could become common.

“Almost every lending institution is doing everything it can to back out of their loan commitments,” says developer Marv Romanek, who won a settlement in the mid-1990s from two banks, including Chicago’s Continental Bank, over their alleged refusal to fund a loan to complete a 28-story office building at 633 St. Clair St. in Streeterville.

Mr. Trump alleges that a lending group led by a unit of Deutsche Bank wrongfully refused to extend the maturity date of a $640-million first mortgage used to finance his 92-story hotel/condo project at 401 N. Wabash Ave., according to a complaint filed Nov. 6 in trial court in Queens County, a borough of New York.

A representative of Deutsche Bank and two affiliates that are defendants in the case declined to comment.

Related story: Trump sues lenders for more time to pay off loan on Tower

Even in the current downturn, Mr. Trump isn’t the first developer in the Chicago area to sue his lender. In February, South Barrington-based Kennedy Homes sued a group of banks led by Harris N.A., alleging that the bank errors in tabulating its loan balance led Kennedy to overdraw its line of credit and become insolvent.

In Mr. Trump’s case, the New York developer is also seeking a court-ordered extension of time on a $130-million mezzanine loan issued by a smaller group of finance firms, led by Fortress Credit Corp., an arm of New York-based Fortress Investment Group. A Fortress spokeswoman did not return calls requesting comment.

Mr. Trump contends he is entitled to the extensions in part under “force majeure” clauses in both loans, standard provisions that would excuse some contractual obligations — such as payment due dates — because of a calamitous event such as an earthquake or a labor-union strike.

“We are currently living through perilous times….and are witnessing the worst worldwide financial crisis….since the Great Depression,” the complaint alleges, citing a report by Deutsche Bank’s own investment research unit.

Observers are closely watching the outcome of the force majeure claim because of its possible widespread application to other projects.

“We’re in an economic crisis, yes, but does that constitute force majeure?” said real estate attorney James Fox, a partner in the Chicago office of law firm Quarles & Brady LLP. “Only crazies would do that.”

The force majeure claim is “a stretch in this case, but it gave him a toehold,” said Mr. Romanek, managing director with Northbrook-based Romanek Properties Ltd.

Mr. Trump’s complaint also offers a broadside attack on Deutsche Bank’s sale of portions of the $640-million loan to “many institutions, banks, junk bond firms and virtually anybody that seemed to come along, in order to get massive fees . . . without regard to the plaintiffs, the Trump brand name or the project.”

Many of the participants in the loan “have no real estate lending experience or understanding of real estate sales and marketing, particularly in today’s unprecedented national and worldwide economic climate,” the complaint charges.

The complaint does not identify which participants are so-called “inappropriate lenders” and which are not. But some participants are themselves victims of the economic downturn and no longer have the cash to fund the completion of the project.

Representatives of the participants in the Deutsche Bank and Fortress loans either declined to comment or did not return calls requesting comment. Two participants could not be located.

The 21 participants in the Deutsche Bank construction loan are:

• Fortress Credit Corp., an affiliate of Fortress Investment Group.
• Union Labor Life, or Ullico Inc., a Washington, D.C.-based insurance company.
• Istar Financial, a New York-based real estate investment trust.
• Merrill Lynch Capital Corp., a unit of the Wall Street investment house.
• Norddeutsche Landesbank Hahn, a New York branch of a German bank.
• Landesbank Sachsen Aktiengesel, a state-owned wholesale bank based in Frankfurt, Germany.
• Highland Funds, an affiliate of Dallas hedge fund manager based Highland Capital Management L.P.
• Morgan Stanley Mortgage Capital, a financial advisory unit of the Wall Street investment firm.
• Oak Hill Funds, a private-equity firm based in New York.
• Deutsche Hypotheken Bank, a German commercial and mortgage bank.
• AIB Debt Management, an affiliate of Dublin, Ireland-based Allied Irish Bank.
• Bank of East Asia Ltd., a Hong Kong-based commercial and retail bank with an office in New York.
• Foothill, a finance subsidiary of San Francisco-based Wells Fargo & Co.
• Satellite Senior Inc. 11, a New York-based trust, which couldn’t be located.
• Eaton Vance/Grayson & Co., a joint venture of Boston-based investment management company Eaton Vance and New York retail consulting firm Grayson & Co.
• MJX Venture, a New York-based asset and investment management firm.
• E. Sun Commercial Bank, a Taiwan-based bank and financial holding company with offices in New York.
• Greenwich Capital Financial, an affiliate of the Royal Bank of Scotland that specializes in fixed-income investments.
• Bank of Communications, a Chinese commercial bank with an office in New York.

The participants in the Fortress mezzanine loan are:

• German American Capital Corp., a New York-based subsidiary of Deutsche Bank, based in New York.
• Blackacre Institutional Capital Management LLC, the real estate investment division of New York based Cerberus Capital Management L.P.
• Newcastle Investments L.P., an affiliate of Fortress.
• Dune Capital L.P., a New York-based fund manager.
• Drawbridge Special Opportunities Fund L.P., a fund managed by an affiliate of Fortress.
• PCRL Investments L.P., a New York investment fund, which could not be located.

AIM Realty Group Chicago

(Crain’s) — Home sales in the Chicago area dropped 22.1% during the third quarter, compared to the third quarter, 2007 according to the Illinois Assn. of Realtors.

In the third quarter, a total of 20,449 single-family homes and condominiums were sold in the nine-county Chicago region, compared with 26,257 during third quarter last year. However, homes sale fell at a slower pace than in the second quarter, when sales plunged 28.9%, compared to the second quarter, 2007.

“Clearly the housing market is still unsettled,” said David Hanna, president of the Chicago Association of Realtors, in a news release announcing the sales figures.

In the city of Chicago, third quarter-sales were down 23.3 percent, to 5,958 units, from 7,769 in last year’s third quarter. The median price of a city home was down 4.5 percent, to $289,400, in the third quarter, compared to $302,900 in the third quarter of 2007. The median is the midpoint, at which half of the homes sold for a higher price, and half for a lower price.

For the entire Chicago area, the median price dropped 6.7% to $244,990 in the third quarter, compared to $262,500 in the third quarter, 2007, the Illinois association said.

Statewide, sales dropped 21.2% in the third quarter, to 31,451 homes, from 39,904. For the entire state, the third-quarter median price was $190,000, down 8.2% from $207,000 in the same quarter last year.

Illinois has lost 15,800 jobs between January and September, a pace that isn’t as bad as the nation or other Midwestern states, Geoffrey J. D. Hewings, director of the Regional Economics Applications Laboratory at the University of Illinois at Urbana-Champaign, said in the news release.

Interest rates were little changed from a year ago. The average rate for a 30-year fixed rate mortgage for the North Central region in the third quarter was 6.44%, according to the Federal Home Loan Mortgage Corp., compared with 6.58% during the same quarter last year.

Sales and price information is generated from a survey of Multiple Listing Service sales reported by 35 participating Illinois Realtor local boards and associations, according to the statement. The association defines the Chicago area as the counties of Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry and Will.

AIM Realty Group Chicago

Grocer leases former Cub Foods on South Side
Discount grocer Food 4 Less is tentatively slated to open a store early next year in a former Cub Foods location at the Chatham Ridge Shopping Center, 87th Street and the Dan Ryan Expressway. Food 4 Less signed a lease in August, an executive with the shopping center’s owner, Oak Brook-based Inland Real Estate Corp., said on a conference call recently with analysts. Food 4 Less is leasing the former Cub Foods plus additional space, for a total of just more than 63,000 square feet. Food 4 Less, which currently has 13 Chicago-area stores, is a division of Cincinnati-based Kroger Co. Inland owns Chatham Ridge in a joint venture with the New York State Teachers Retirement System.

Deerfield Capital cuts 27% of workforce
Deerfield Capital Corp. plans to cut 25 employees, about 27% of its workforce, as part of a plan to save $11 million annually, the investment firm said this week when it announced third-quarter results. The Rosemont-based company, which invests in mortgage-backed securities and corporate loans and has seen its stock fall 95% this year, reported a net loss of $156.9 million in the quarter. The company also said it has terminated its status as a real estate investment trust (REIT) to create future tax savings.

Equity Int’l invests in third Chinese company
Equity International said this week it has invested $46 million in a Chinese industrial property company. Chicago-based Equity International, which invests in non-U.S. real estate-related companies, put the money into privately held Shanghai Yupei Co., the third Chinese company in which the firm has invested. Sam Zell is chairman of Equity International, which he and CEO Gary Garrabrant founded in 1999. The firm has invested in 17 companies so far.

Lake Zurich warehouse sold
Cabot Properties Inc., a Boston-based investment firm that specializes in industrial properties, paid about $4.8 million for an 85,263-square-foot industrial building at 635 Oakwood Drive in northwest suburban Lake Zurich. The building is located on 4.7 acres of land near Rand Road and is leased to Insight Beverages Inc., a manufacturer and distributor that has its headquarters across the street at 750 Oakwood Drive. Nicholas Esposito of Arthur J. Rogers & Co. represented Cabot in the purchase while the seller, a private investment group, was represented internally.

AIM Realty Group Chicago

(Crain’s) — Shares in General Growth Properties Inc. plunged Tuesday after the shopping mall owner raised the possibility that it may have to file for bankruptcy protection as it tries to refinance more than $4 billion in debt that comes due by the end of 2009.

The stock closed Tuesday at 49 cents a share, down 88 cents, or about 64%.

“Even without a bankruptcy filing, equity holders remain at risk from other potential capital raising alternatives with a capital infusion or a debt-for-equity swap significantly diluting their interest,” Citigroup Global Markets Inc. analysts write in a research report. “There is no quick fix in the current capital constrained environment and the shares will likely remain extremely volatile.”

Chicago-based General Growth said in a quarterly report filed Monday with the Securities and Exchange Commission: “In the event we are unable to extend or refinance our debt or obtain additional capital on a timely basis and on acceptable terms, we will be required to take further steps to acquire the funds necessary to satisfy our short term cash needs, including seeking legal protection from our creditors.”

General Growth, the owner of Water Tower Place and Oakbrook Center malls, has struggled to refinance its debt amid the worst financial crisis since the Great Depression. The real estate investment trust (REIT) relied heavily on short-term debt to finance acquisitions earlier this decade, including its $7.2-billion buyout of Rouse Co. in 2004, and is paying a heavy price for that strategy as loans mature and financing options dry up.

Related story: Bucksbaum’s burden

“Our potential inability to address our 2008 and 2009 debt maturities in a satisfactory fashion raises substantial doubts about our ability to continue as a going concern,” the report said.

General Growth filed the quarterly report after the markets closed. Shares in the real estate investment trust (REIT) fell 70 cents, or 34%, Monday, to $1.37, an all-time low, after Circuit City Stores Inc. filed for Chapter 11 bankruptcy protection. The filing fueled concerns that the electronics retailer will use the bankruptcy process to break leases at shopping malls owned by General Growth and other landlords.

General Growth shares have plunged 97% since the beginning of the year, vs. a 56% drop for the Bloomberg REIT Regional Mall Index, as investors have become increasingly worried about the company’s looming debt maturities.

The company’s most immediate worry is $958 million in loans that mature between now and Dec. 1. That includes loans on two Las Vegas malls — the Fashion Show and the Shoppes at the Palazzo — that General Growth has put up for sale. The company is also trying to buy more time with its lenders by extending the maturity dates on the loans.

If the company fails to pay off the maturing debt, it could trigger defaults on other company loans, allowing lenders to demand immediate repayment.

“If our debt is accelerated, our assets may not be sufficient to repay such debt in full, and our available cash flow may not be adequate to maintain our current operations,” the report said. “Under such circumstances, or if we believe such circumstances are likely to occur, we may consider or pursue various forms of negotiated restructurings of our debt and equity obligations and/or asset sales, which may be required to occur under court supervision.”

AIM Realty Group Chicago