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Land lease holds building hostage: Owners of parcel entangled in court fight

June 19, 2006

A scuffle for ownership of land under downtown's landmark Illinois Building has spilled into court, possibly bogging down efforts to redevelop the vacant structure.

Building owner HDG Mansur leases the land from its owners under a 99-year agreement it inherited when it bought the building. The pact, signed in 1919, stipulates that any improvements on the land revert to land owners when the lease expires in 2018.

A Lebanese businessman appears to be working with HDG Mansur to break the ownership quagmire. Records list his Mayfair Investment Corp. as owner of two of the three parcels under the 81-year-old building, which sits at the southeast corner of Illinois and Market streets.

Mayfair owns 17 percent of the remaining parcel, and in January it filed a lawsuit in an attempt to purchase the rest from heirs of John Holliday and his wife, Evaline. John Holliday founded the now-defunct Indianapolis News. The couple later donated land to the city at 64th and Meridian streets that became Holliday Park.

According to court records, Mayfair acquired its minority stake by persuading one heir to sell. But the roughly 20 remaining heirs with a stake have turned down repeated offers from Mayfair, the suit says.

Parties directly involved in the litigation declined to comment in detail or did not return repeated calls. However, real estate experts say the Illinois Building is one of many downtown structures built in the first half of the 20th century that sits on land leased from third parties, potentially complicating redevelopment efforts.

While a single family originally might have owned all the land under a building, the number of owners multiplied as that family passed on ownership to their children, and that generation passed ownership to their children.

"Some families want to work through the issues and either sell the land or redo the lease. Some might not want to sell or may think [their portion of the land] is more valuable than what it is," said Evert Hauser, an Indianapolis Bond Bank official who dealt with land leases when the city redeveloped Union Station in the 1980s and built Circle Centre in the '90s.

Were it not for the land lease, the Illinois Building would appear a prime site for redevelopment. Originally an office building, the 10-story structure has been vacant since 2003, despite a boom in downtown development in recent years.

The building is one of several on or near Monument Circle designed by Rubush and Hunter, among the city's top architectural firms a century ago. HDG Mansur has not disclosed its intentions for the building, but the Historic Landmarks Foundation of Indiana earlier this year put it on its list of "10 Most Endangered" landmarks, citing fears it would be demolished for a new structure.

For now, the legal tangle would appear to put whatever plans HDG Mansur has on hold.

The Indianapolis-based company, which acquires real estate on behalf of wealthy investors, did not respond to inquiries about its ties to the Lebanese businessman, Salah Osseiran, and he could not be reached.

Business records list Osseiran as the president of Boca Raton, Fla.-based Mayfair Investment and as the owner of businesses worldwide, including a real estate firm and a water-bottling company. He and HDG Mansur CEO Harold Garrison both serve as directors of CTI Group Holdings Inc., an Indianapolis software company.

HDG Mansur pays $20,000 a year to rent the Holliday parcel, which is roughly a third of the land on which the Illinois Building sits, according to a 1982 update to the original lease.

Records identify Mayfair as owner of the other two parcels, but don't reveal whether other investors also have ownership interests.

Nor do the records disclose how much Mayfair has offered to pay to buy out the Holliday heirs on the third parcel. The attorney for the heirs, Marvin Mitchell of Mitchell Hurst Jacobs & Dick LLP, declined to comment on why they have turned down Mayfair's overtures.

In the lawsuit, Mayfair argued that its partial ownership gives it the right to ask a judge to force a sale, with proceeds divided among owners. It argues that splitting the land into tiny slices would destroy its value.

Until now, the majority of the work on the case has involved tracking down heirs to the original lease. Marion Superior Court Judge Robyn Moberly has set a June 22 scheduling conference.

"We would like to have this move as quickly as possible," said Michael Lewinski, an attorney with Ice Miller LLP representing Mayfair. "But typically, with any litigation, it's not unusual for it to last a year or more."

This isn't the first time a dispute over a downtown land lease has led to litigation.

Several years ago, Rosemont, Ill.-based First Hospitality Group tangled in court with owners of land underneath the Fletcher Trust Building, at 10 W. Market St. The parties ultimately reached a settlement that cleared the way for First Hospitality to open a Hilton Garden Inn there in 2003.

The land continues to be owned separately from the building, but terms of the settlement weren't disclosed.

"As a practice, we avoid land leases because they always add a wrinkle," said First Hospitality Group President Robert Habeeb. "We ultimately liked the deal enough that we went ahead in spite of [the land lease]. That was a decision that we regretted from time to time after that."

Other notable buildings on leased land include The Guaranty Building at 20 N. Meridian St., the Block Building at 50 N. Illinois St., and Circle Tower on the southeast quadrant of Monument Circle.

In 2000, locally based Cornerstone Properties agreed to purchase Circle Tower from the owner at the time. But the deal fell through after Cornerstone couldn't reach an agreement with the owners of two underlying parcels.

Hauser said land leases sometimes foil redevelopment plans because the land owners think they have a developer "over a barrel" and can negotiate higher payments.

Older land leases, which typically are 99 years, can be especially tricky to navigate when the agreements are nearing expiration. At that point, the buildings usually revert to the landowners.

That means developers are hesitant to put any money into the building unless they can secure another long-term lease or purchase the underlying land, said Michael Drew, senior vice president of the local office of St. Louis-based real estate firm Colliers Turley Martin Tucker.

"The landowner is eventually going to end up with the improvements at some point in time, and the improvement owner is eventually going to end up with nothing," Drew said. "It can delay any development, renovation or razing of a building."
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