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Developers Burned in the 
Downturn are Investing Again
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When real estate values collapsed a half-dozen years ago, foreclosure lawsuits piled up and construction cranes came down. 

But even at rock bottom, developers lived up to their reputation for never knowing when to quit. In many cases, they resolved lawsuits with one hand while planning projects with the other. 
“The mentality is, once a developer always a developer,? says lawyer Neal Levin, a partner and head of the fraud and internal investigations team at Chicago-based Freeborn & Peters LLP. 
During the worst of the downturn, distress hit everything from small condominium developments to some of Chicago's best-known properties, including the John Hancock Center, Prudential Plaza and the Block 37 shopping mall. 

Some developers will never regain enough of their reputation, or their stomach for risk—or the financing—to resurface. But several who weathered the crisis are jumping back into the fray, sometimes even backed by the same lenders and investors. 

“Essentially everybody was impacted in commercial real estate,? says David Hendrickson, a managing director at Chicago-based Jones Lang LaSalle Inc., who arranges development financing. Lenders nowadays are willing to back projects again—even those pitched by developers whose track record was tarnished during the crash. “It's not, 'Did you have a foreclosure or not have a foreclosure?' There'd be nobody left.?

Even so, developers now need a more detailed plan, stronger investment partners and more cash upfront to secure a mortgage. How they behaved during foreclosure also is a factor, Mr. Hendrickson says. 

Real estate lawyer Steven DeGraff, a principal at Chicago-based Much Shelist P.C. who represents banks in foreclosures, says some delinquent borrowers cooperate with an eye to the future, rather than fighting in court. 

“Those who have real estate in their blood are geared to getting back in the game,? Mr. DeGraff says. 

Dallas-based Hart Advisors Group counsels borrowers on negotiating with special servicers, which handle troubled loans for banks. CEO Tanya Little, who has clients in Chicago, says it is common for developers to resolve their cases while simultaneously buying other troubled properties from the same special servicer. 

Freeborn's Mr. Levin, who often pursues hidden assets on behalf of lenders or successors in interest, says the fearlessness that led developers astray could point the best ones back to prominence. 

“It still requires ingenuity to find the opportunity and capitalize on it,? Mr. Levin says. “The smart ones who were successful before will find themselves successful again. They're not going to accept, as an ultimate obstacle, that lending practices have tightened. Most are convinced that they will rise again in that area.?

SOURCE: Crain's Business written by Ryan Ori
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