Thursday 22 November 2018

Garrett Kelleher pursuing Nama for $1.2bn over Chicago Spire project

Ronald Quinlan, Commercial Property Editor

US lawyers representing Garrett Kelleher have filed a lawsuit seeking damages of $1.2bn (€975m) against Nama, alleging that the agency destroyed the developer's chances of building the Chicago Spire through a combination of "sheer spite" and "consistent incompetence" on the part of certain of its officials.

In a 60-page complaint lodged with the Federal District Court in Illinois last Monday, Kelleher's company, Shelbourne North Water Street Corporation, points the blame at Nama for the project's demise, citing its refusal to support his plans for the Spire following the collapse of its principal funder, Anglo Irish Bank.

Prior to the financial crisis and the collapse of the project's principal lender, Anglo Irish Bank, Kelleher had intended the Chicago Spire to reach to a height of 2,000 feet (610 metres), making it the tallest residential building in the world, the then tallest building in the western hemisphere and the then second-tallest building in the world.

In pursuing the developer's case against Nama, lawyers from the firms of Barclay Damon LLP and Freeborn & Peters LLP said in a statement that they will be seeking defined damages of over $1.2bn. The sum being sought includes some $525m in cash and equity which Shelbourne, and Kelleher claim to have invested in the Chicago Spire before the project was stalled.

According to Kelleher's complaint, the design, marketing, sales, foundation and substructure of the Spire was completed at a cost of some $300m alone. In terms of the project's design, Kelleher engaged the services of the world-famous Spanish architect, Santiago Calatrava.

Calatrava's involvement in the delivery of the tallest residential building in the world on the last major undeveloped site on Chicago's famed Lake Michigan shoreline unsurprisingly proved to be attractive to high net worth individuals around the world.

Prior to the onset in 2008 of Ireland's financial crisis and Anglo Irish Bank's difficulties, JP Morgan Private Bank had pre-approved purchasers for mortgages in Chicago, New York, London, Dublin, Singapore, Hong Kong, Beijing, Shanghai, Cape Town, Abu Dhabi and Doha.

Anglo's inability to continue funding the Chicago Spire after August 2008 and the absence of alternative finance from a new lender saw the project grind to a halt. In a separate twist that many will now find ironic, Trump Tower in Chicago, which had begun construction six months earlier than the Chicago Spire, continued to receive funding from its main lenders, Deutsche Bank and Credit Suisse, notwithstanding the fact that both institutions were also dealing with the impact of the financial crisis.

The successful completion of Trump Tower resulted in all loans extended by Deutsche Bank and Credit Suisse being honoured, while the Chicago Spire project floundered.

But while Anglo was unable to continue funding Kelleher's plan, the developer later presented proposals to Nama which he believed would have led to the Spire's completion and the full repayment of all loans advanced by Anglo for the project. Kelleher claims that Nama dismissed his idea however, deciding instead to cause the Spire's debt to be sold to another third party for a price which he believes resulted in a loss of €57m to the Irish taxpayer.

Elsewhere in his complaint, Kelleher accuses Nama of failing to "adequately comprehend" the impact of its refusal to support his plan to develop the Chicago Spire for the city of Chicago itself.

Explaining this, he points in his complaint to the rights he obtained following negotiations with Chicago authorities allowing for the site of the Spire's foundations to extend beyond the 2.2 acres which had been in Shelbourne's ownership into the adjoining five acres owned by the City of Chicago. Without these 'Other Kelleher Related Rights', the developer says that portions of that $300m Spire substructure cannot be used.

He argues that this is one of the reasons the Chicago Spire site remains an unsightly hole in the ground to this day.

Kelleher's legal pursuit of Nama and its subsidiary, Natonal Asset Loan Management (Nalm), in Chicago comprises five claims. The Shelbourne chief is alleging that Nama is liable for the payment of damages arising from breach of contract, tortious interference with contract, tortiosu interference with prospective economic advantage.

Each one of these three alleged breaches represents a claim for defined damages exceeding $1.2bn according to the papers filed last week with the courts in Illinois.

Kelleher's fourth and fifth claims accuse Nama of being in breach of its statutory and common law duties to preserve confidential information, and of negligent spoilation of evidence.

The developer's legal team say they expect a full trial to take place in 2019 following initial procedural hearings, discovery of documents, subpoenas and preparation of affidavits.

As part of its case, Shelbourne expects to subpoena several current and former Nama officials including Nama chairman Frank Daly, Nama CEO Brendan McDonagh, Nama portfolio manager Peter Malbasha, Nama's former head of asset management John Mulcahy, and former senior executives Kevin Nowlan and Michael Moriarty.

It also expects to subpoena the IBRC's special liquidators, Kieran Wallace and Eamonn Richardson of KPMG. Commenting on the Spire lawsuit, Barclay Damon partner and lead attorney in the matter, J Joseph Bainton, said: "This is a case close to the heart of the City of Chicago, because there remains an ugly hole in the ground that continues to scar the city in one of its most spectacular locations.

"In this case, it will not only become clear how Chicago has suffered because of the incompetence and spitefulness of Nama, but also of the grave damage done to Shelbourne and Garrett Kelleher, for which Nama is culpable and liable under US law. We will also show how Nama disadvantaged the Irish taxpayer by tens of millions of dollars.

"Whatever powers and influence Nama might enjoy in Ireland, it has no special status here. On the level playing field of the federal justice system Nama will be judged as to the facts by a jury of its peers based upon the evidence and nothing else.

"We are confident that a Chicago jury will return a verdict awarding Shelbourne damages in a sum that redresses in full measure the consequences of Nama's unlawful activities. That sum we believe will be in excess of $1.2bn."

Contacted by the Sunday Independent for a response, a spokesman for Nama said: "The Agency is currently assessing the lawsuit and considering its options but expects to mount a full defence to this case."

Sunday Independent

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