CHICAGO -- The government will take over a luxury high-rise development here that borrowed almost $159 million in federally backed money in what officials called the biggest federal mortgage insurance program cleanup.
Federal housing officials and developers of the financially troubled Presidential Towers apartments failed to meet an Oct. 1 deadline to agree on a proposed $16 million loan to help the project stay solvent, both sides said.
The money would have forestalled a default on loans that developers obtained to build the 2,346-unit high-rise, which opened in 1985 on the west edge of the city's downtown.
The federal government now must repay the loans and take over as lender, spokesmen for both sides indicated.
The tab is the biggest in the history of the Federal Housing Administration's mortgage insurance program, said Bill Glavin, a spokesman for the Department of Housing and Urban Development, which oversees the FHA.
Glavin said HUD hopes to foreclose on the project in six months. When HUD takes over such a project, it generally sells the property, he added.
Douglas R. Woodworth, a spokesman for the developers, said they would try to negotiate an arrangement "we think would be less costly to the government than a foreclosure."
Such a deal could occur under a special program that would allow HUD's immediate payout to be limited to $40 million, reducing the first mortgage by that amount. The developers would owe the $40 million to HUD as a second mortgage they would pay later, Woodworth said.
HUD would benefit because it would not have to absorb a large loss at one time to its insurance fund, but it could suffer greater losses in the future. Developers Daniel E. Levin, James P. McHugh and Daniel J. Shannon would gain by buying time until the project becomes self-sustaining, which HUD said could take as long as eight years.
HUD Secretary Jack Kemp favored the $16 million cleanup only if the developers could raise $13 million of their own, which Glavin said they could not or would not do.
Kemp said in Chicago last month that "there should never have been this type of federally guaranteed investment" as the one that backed loans to Presidential Towers.
The 48-story, four-building complex was built over the objections of community activists who said it would displace many poor people.
The complex is about 90 percent occupied. Its 3,100 tenants are mostly young professionals and should not be affected by the project's latest financial troubles, Woodworth said.