$5 million lien filed on still-incomplete M2 building

CHAMPAIGN – Several contractors are awaiting payment from a local development firm for work performed on the M2 building in downtown Champaign, prompting the contractors to file mechanics liens.

In addition to the liens, the sluggish economy and time-consuming repair rework have slowed the project's completion and hindered office and retail rentals.

Repairs are expected to begin in the coming weeks on the brick veneer and windows on the building's south side, almost a year after they were damaged from the fire that destroyed the historic Metropolitan Building across the street. New sidewalks are also expected to be installed soon.

Wilhelm Construction Co. of Indianapolis, the general contractor for the $44 million project at 301 N. Neil St., filed a $5 million mechanics lien on the building because of nonpayment.

Wilhelm's operations manager, Doug Curts, declined to discuss specifics of the liens filed by Wilhelm or its subcontractors, other than to say the liens "speak for themselves."

Wilhelm claims it has received about $24.3 million so far for work on M2 but is owed $5.05 million.

"We are continuing discussions with the owner to resolve the differences. We are hopeful they will end in a successful way," and both parties will avoid arbitration or litigation, Curts said.

Several subcontractors, whose work is included in Wilhelm's claim, have filed liens of their own. Among them is Potter Electric Service of Urbana. This is the first mechanics lien the electrical contractor has ever had to file on a project, said Jennifer McFall, the company's office manager. Potter performed just over $2 million of work, such as wiring and metering, on the project. The company is owed about $291,000, according to Potter's owner, Randy Ruthstrom.

"To anybody, $291,000 is a lot of money," he said.

During the final phase of M2's construction, "there were questions about the final billing and we did disagree" with the general contractor, said Mike Royse, president of One Main Development, the developer behind M2 and its neighbor across the street, the One Main building. As a result, "we are in discussions to resolve this dispute," he said.

Those discussions are "maturing and nearing a finish," Royse added.

A mechanics lien is a hold on property; a lien attaches to the property, according to Margery Newman, construction attorney with Deutsch, Levy & Engel in Chicago and vice chair of the Illinois State Bar Association's real estate law section.

Once a lien is recorded, it shows up on property's title, notifying people who may invest in the property that there is someone – a subcontractor, for example – who has worked on the building and claims the firm has not been paid, she said.

"The impact is when you go to sell that property or refinance the property," Newman said, "no one is going to loan money to buy a piece of property or refinance it if, when they check the title, they see somebody has a prior claim."

"That's the clout that a lien claim has. It protects a contractor and subcontractor's right to payment."

Most cases settle, avoiding arbitration and litigation, but they can be long, drawn-out and complicated cases, she said.

City investment

The city of Champaign, which has so far provided about $1.2 million in Tax Increment Financing district money to the developer, is aware of the liens, said Craig Rost, deputy city manager for development. Rost said it is not uncommon for liens to be filed on large construction projects. The city is not involved or concerned about the liens unless the cases went to court and a judgment were to occur and that judgment affected the building's property value, he said.

"Then, since we have an investment in (the project), we'd get involved," he said.

In Champaign's agreement with the developer, signed in 2007, the city is to provide $3.7 million in tax increment financing, spread out over several years, to the developer to help with costs such as property acquisition, demolition and utilities.

The city has made two TIF payments to the developer so far, with the next payment of $500,000 due in January 2010. Those payments are contingent on the project generating tax revenue. The city's agreement with One Main Development does have a provision that allows for a reduction or repayment of TIF funds if the building does not meet its assessed value projections, but Rost said he is not concerned that would happen.

In addition to the TIF money, about $850,000 in local and state sales tax abatements have been given on construction materials.

And once the project starts generating real estate taxes, $3.5 million will go to paying off the $12 million Hill Street parking deck the city built adjacent to M2. The city purchased the property for the deck from the developer for $600,000.

The city also transferred property worth an estimated $400,000 (city-owned parking lots along Neil Street) to the developer for the project.

Building progress

Construction on M2, a nine-story, multi-use building, began with a ground-breaking at the end of April 2007. A year and a half later a spectacular fire broke out across the street, damaging the south side of M2 and other nearby buildings. Around that same time, the financial markets were in a free fall, and credit became much more difficult for businesses to obtain.

The first occupancy permits were issued in April of this year and the first condominium owners were able to start moving in. So far seven of the 51 condos have been sold, plus several more are under contract to buy. None, however, have closed since Wilhelm's lien was filed at the end of July. Some buyers with contracts to purchase the condos have been able to move in according to early-possession agreements, Royse said.

Two years ago this fall the developer announced Destihl, a restaurant and brew pub, would lease about 8,000 square feet of space on the first floor. But that project has been delayed, and no building permits have been filed yet. Office leasing has been slow, with only four office tenants in The Enclave, the name for the fourth floor with a mix of single-office suites, group suites, adjoining spaces and shared spaces. The second, third and fifth floors, for offices or retail, have not been built out yet. Condos are on the sixth through ninth floors.

"We thought it'd be fuller by now, but I know the economic downtown has really hurt," Champaign Mayor Jerry Schweighart said. "With the Dow (Jones Industrial Average) now over 10,000, maybe the banks will come back, and getting financing and loans will be easier" for businesses, he said.

The city recently issued a building permit for $1.5 million worth of work to repair the fire-damaged facade and windows. Scaffolding is expected to be installed for that work soon, according to Royse, and the sidewalks in that section will be poured after the brick work is done and the scaffolding removed. Work on the brick veneer will take place over the next 90 days, he said.

Recently, electrical work for exterior lights has begun and the sidewalks elsewhere around the building will be going in within the next few weeks. The repairs were delayed because it took time to finalize the design specifications, have the project bid and permitted, in addition to filing the insurance claim, according to Royse.

"It's quite a project," he said.

Work on Destihl's space could begin sometime this fall or early winter, he said.

Those plans continue to evolve, he said, and "we are now in review of their final plans to go in there," Royse said.

One Main Development is in discussions with another potential restaurant that would take up space on the north side of the building, also on the first floor, but no lease has been signed. Also still under discussion is a possible fitness center for the second floor.

Encouraging signs

Financing is still an issue for businesses, Royse said, and raising capital is taking much longer than in previous years.

But since the end of summer, Royse said, the company has seen "a drastic increase" in inquiries from companies interested in commercial space.

"We are seeing a rash of commercial interest as the economy is getting stronger," he said.

The first retail tenant will open in the building next month. BankChampaign will open its full-service branch on the east side of the building, with a grand opening on Monday, Nov. 2.

Cynthia Faullin, director of development for One Main Development, acknowledged it has been "more difficult" selling the building's office space than the retail and condos.

About two years ago the developer considered devoting an entire floor for commodities and securities traders, but the firm shelved the idea due to the economy. The fourth floor has four tenants currently, and the developer has started marketing the space to area nonprofits at reduced rates.

"We want to try to be creative in how we're filling the space," Faullin said. The idea is "to bring organizations to the center of city and help them interact with each other and encounter other people who can help their businesses too."

Faullin said the firm has been talking with three potential office tenants, two of which are considering leasing up to as much as an entire floor.

Royse said he thought The Enclave would take about a year to fill, and the pace for selling condos has been "slow but sure," he said. The company estimated it would also take a year to sell all the condos.

"One of the biggest challenges is selling condos in a market in which it's really difficult to sell real estate," Rost said. "Lending has to loosen" before the market can bounce back, he said, adding that he's "not faulting One Main (Development) for the economy. Those appear to be attractive (condo) units in this market."

Sidewalks and parking

The city is currently drafting a letter to One Main Development that outlines its expectations for what still needs to be done on the building, much of it related to streetscaping, as well as a schedule of when the work is expected to be done. Most of the sidewalks will be done this fall, Rost said, but the sidewalks on the south side of the building, where the brick work will be done in the next couple of months, will not likely be finished until the spring.

Schweighart said the lack of sidewalks has most likely prevented some people from using the Hill Street parking deck that the city built.

Since it opened in March and through the end of September, the deck has brought in about $16,000 of revenue, according to Stacy Rachel, the city's administrative services supervisor. The average number of cars parking in the deck per day ranged from 47 in March, up to 102 in June and 78 in September. A total of 45 permits have been issued for the deck. According to the city's Web site, the deck has 600 parking spaces.

The city issued bonds to pay for the parking deck. Those bonds are expected to be paid off in 20 years using income from the deck, the increase in parking fees and hours of enforcement as well as downtown TIF funds.

"Once we get that corner done, with the sidewalks and the restaurant goes in there, then I think you'll see things pick up," Schweighart said.

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