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Judge Doyle Square litigation could cost city $40 million, developer says

November 20, 2018

With a critical City Council vote Tuesday, Mayor Paul Soglin and city attorney Michael May are warning of potential costs, delays and other impacts if a developer sues the city over the massive Judge Doyle Square project.

Beitler Real Estate Services of Chicago, in a new memo to city officials, said it doesn’t want to sue but that current plans to transfer part of the project from private to public ownership “will result in a lawsuit for damages associated with the entire project in excess of $40 million.”

The council twice has refused to pay $600,000 to Beitler to resolve the dispute over part of the $186 million project, which calls for a hotel, apartments, commercial space and parking on blocks that hold the Madison Municipal Building and Government East parking garage.

The council is slated to decide Tuesday whether to reconsider the $600,000 payment and concessions from Beitler in an amended development agreement.

Soglin said he hopes the council agrees to reconsider but delays a decision on any amended development agreement until early January, which would allow more time to resolve the impasse.

“It would give us five or six weeks to work on it,” Soglin said Monday. “I really believe this is in the best interest of the city. The other course can only lead to litigation and delays.”

Ald. David Ahrens, 15th District, Beitler’s most vocal critic, said threats of litigation are nothing new and that the developer’s memo underlines the major problem in working with Beitler: “They’ll sue us whether we do or don’t go forward with the project.”

The $600,000 payment stems from a lawsuit Beitler filed against the city and then withdrew this summer.

Beitler sued the city in June after the council authorized $11 million to construct first-floor retail, two levels of private parking and a structural slab, collectively called the “podium,” above an underground, public parking ramp now being constructed on the Municipal Building block. Beitler claimed the city was trying to seize its rights to develop those private elements, while the city maintained Beitler asked it to consider building the podium due to rising construction costs.

In August, Beitler dropped the lawsuit, and the two parties negotiated the $600,000 payment that would have explicitly given the city the right to build and own the podium. Last month, the council voted 10-8 in favor of the payment, failing to reach the 11 votes needed to pass.

On Nov. 13, the council by a 14-6 vote rejected an amended development agreement that included the payment and new concessions by Beitler.

Ald. Mike Verveer, whose 4th District includes the project, changed his vote on Nov. 13 from supporting the payment to opposing it so he could request the issue be reconsidered again. Verveer, noting at least one council member has an excused absence, isn’t sure what will happen Tuesday but said he sees merit in delaying the decision on the amended agreement.

Implications of the vote

On Friday, May issued a four-page memo to the council outlining implications of the coming vote and warning that a lawsuit would last several years, cost hundreds of thousands of dollars and create even more uncertainty about Judge Doyle Square.

The city and Beitler, he said, have an existing, binding development agreement, adding, “the city cannot simply throw Beitler off the development and move to a new proposal.”

Under the existing deal, Beitler has two years after the public parking garage is done to begin construction on one of three main private elements — apartments on the Municipal Building block, or the hotel or apartments on the Government East block.

With the amended agreement, the city pays the $600,000 and Beitler gives the city the right to build and own the podium, May said. Also, Beitler agrees to build the hotel first, move its startup from 24 to 18 months after the public garage opens and move up dates for the other building startups. The city doesn’t have to demolish Government East until Beitler applies for a building permit before hotel construction begins, saving the city up to $700,000 to cap the site if Beitler doesn’t move forward immediately.

Ahrens said May’s letter “attempts to scare alders into paying the $600,000 in tribute to Beitler” with no mention of potentially worse problems in continuing the contract.

On Nov. 18, Beitler sent a three-page memo to Soglin and the council saying that the company doesn’t want litigation, but that it’s “unreasonable and illegal” for the council to demand Beitler make concessions related to the podium without adequate payment. Those concessions include the city taking ownership of the podium; changing the design and function from an enclosed, heated parking garage to an open-air garage; and keeping 100 percent of its income.

Beitler said it hopes the council will proceed under the original agreement or reconsider the amended deal. Otherwise, it said, “This public taking without consideration (along with a breach of the development agreement) will result in a lawsuit for damages associated with the entire project in excess of $40 million.”

May declined comment on Beitler’s memo.

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