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Lawsuit: Prudential Plaza Owners Cheated Lenders Out Of $84M

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Aon Center, Chicago, IL
One and Two Prudential Plaza, and Aon Center, Chicago

The 601W Cos., which has its hands full with the struggles at 550 West Jackson, now has to contend with a lawsuit related to its 2015 refinancing of Prudential Plaza. The lawsuit alleges that 601W Cos. head Mark Karasick and his partner in the Prudential Plaza deal, Berkley Properties principal Michael Silberberg, cheated lenders out of $83.8M, Crain's Chicago Business reports.

One and Two Pru were struggling assets when Karasick and Silberberg reversed the properties' fortunes with an $85M recapitalization and debt restructuring in 2013. The banks servicing the loan, U.S. Bank and Wells Fargo Bank, agreed to split the mortgage into a $336M "A" note and a $74M "B" note. "B" notes are often written off as losses by lenders if the borrower cannot turn the property around and repay the debt.

When Karasick and Silberberg refinanced Prudential Plaza in April 2015, they submitted two appraisals valuing the asset at $427.4M and, under the terms of the 2013 debt restructuring, were not required to retire the total debt at the time of refinancing. Karasick and Silberberg applied for a new mortgage two months later with Deutsche Bank and submitted an appraisal valuing Prudential Plaza at $642M.

The lawsuit contends that Karasick and Silberman withheld information to U.S. Bank and Wells Fargo regarding pending lease activity that would have increased the properties' net operating income by $5.8M and valued the assets substantially higher. (McDonald's was rumored to have looked at leasing 350K SF at Prudential Plaza before deciding to build a new HQ in the West Loop.)

In a countersuit, Karasick and Silberman argue that the refinancing was based on the appraisal submitted, not what the valuation would be if any of the pending leases were signed.