Wednesday, January 23, 2008

Looking Back on 47th Street: Risk and Corruption on the South Side

posted by chicago pop

Lest the title of this post mislead anyone, I'll state it upfront: I know of no evidence that corruption of any sort played a role in the saga of Lake Pointe Park Shopping Center, the retail shopping mall that for a few years housed the Hyde Park Co-Op's ill-fated 47th Street Store.

But the Chicago Tribune's front page story detailing the Clinton campaign's effort to tie Barak Obama to Antoin Rezko, alleged south side slumlord and Springfield influence-peddler, got me thinking about just how dicey the world of south side development is. How big the risks are, and how easily the plans go bust. Like they did for the Co-Op.

I don't think Obama's ties to Rezko, who is facing federal indictment, amounted to anything illegal, or even unethical. But if you track the players involved in any of the residential or commercial developments in near south side neighborhoods over the last decade or so, a small set of names and organizations turn up again and again, linked to and including Rezko. It makes you wonder if they should be.

In a conspicuous number of cases, someone running with this small pack gets busted for doing something illegal. Or called by the Trib or Sun-Times for deals that no one can crack, but which come across as suspicious. It seems hard to keep your hands clean in real estate anywhere, and South Side neighborhoods are no exception.

Take one of the partners originally responsible for developing Lake Pointe Park, the Fund For Community Redevelopment and Revitalization, a Woodlawn-based, non-profit community development corporation (CDC) that originally came together with a for-profit developer to build the shopping center at 47th and Lake Park.

During the final agony of the Hyde Park Co-Op, very little media attention was paid to the details of the deal at 47th, who had made how much, and who was still cashing checks from the Co-Op and Certified to pay for an empty store.

The Fund for Community Redevelopment and Revitalization (FCRR) was founded by the prominent civil-rights era activist, Arthur M. Brazier, who together with Leon Finney has founded a number of similar redevelopment funds centered in the Woodlawn area.

As a partner in the Lake Pointe venture, the FCRR was able to obtain a $2,000,000 combined grant from the City of Chicago and HUD, and approximately $1.5 in loans from a national non-profit redevelopment organization to undertake the project at 47th Street in the mid 90s.

While the Lake Pointe Park center neared completion in the late 90s, the FCRR was at the same time hammering out deals with Antoin Rezko's development firm, Rezmar, on a number of south side affordable housing rehabs. To stick only to those deals involving the FCRR, (leaving aside deals between Rezmar and sister organizations of the FCRR also headed by either Brazier or Finney), FCRR signed on with Rezmar in 1997 to rehab affordable housing units on South Ellis and East 46th Street.

In 1998, the FCRR again joined with Rezmar to obtain a $3.8 million loan from the City to redevelop two buildings on South Michigan Avenue, and South Kenwood. Rezmar ceased managing any of these properties when it ran into financial difficulties, while the City foreclosed on several others managed by Rezmar with different CDCs. (Tim Novak, "Rezmar Deals Involving Davis Miner Law Firm." Chicago Sun-Times, April 23, 2007).

A few years later, Allison Davis, a former board member of the FCRR and a founding partner at the prestigious civil rights law firm where Obama worked (Davis Miner Barnhill & Galland), and which handled legal work for projects involving Rezmar, set up his own development deal in Woodlawn on East 63rd Street. The Columbia Pointe mixed-income residential project was initiated with grants from the City for infrastructure, and several parcels of City-owned land were donated to the project. (Tim Novak, "City land for Davis' 2 sons." Chicago Sun-Times, Nov. 11 2007. p. A-16)

Here again, Brazier and Finney show up as backers, together with Vince Lane, former head of the Chicago Housing Authority. In 2001, Vince Lane was found guilty of lying to obtain bank loans to rescue a failing supermarket he had developed at 76th and Racine. Lane was sent to prison for 2 years. (Steve Warmbir, "Ex-CHA Chief Found Guilty of Lying to Banks for $2.5 Million in Loans." Chicago Sun-Times, March 22, 2001, p. 1).

In the Columbia Pointe project, according to Tim Novak at the Sun-Times, Davis sold "the biggest, most expensive house" to his son Jared, for $386,000 in a "mixed-income development project subsidized by Chicago taxpayers." (Novak, "City Land for Davis' 2 Sons")

Just a few months ago, Novak reported that:

Davis and his partners -- including his son Jared and Cullen -- have gotten more than $100 million in taxpayer subsidies to build and rehabilitate more than 1,500 apartments and homes, primarily for the poor. His deals include a massive redevelopment of the Chicago Housing Authority's notorious Stateway Gardens...Davis and his partners have made at least $4 million in development fees over the last decade. (Tim Novak, "How reform-minded City Hall critic bacame a cozy insider." Chicago Sun-Times, Nov. 11, 2007).

It get's confusing fast, and everybody has done deals with everybody. Brazier and Finney have been involved with multiple shady characters. There is money to be made from City and Federal grants to build housing and commercial developments for the poor.

Given the number of these projects that went bad, from Vince Lane's supermarket on 76th and Racine, to Antoin Resko's numerous unheated, below-code, and foreclosed rehab rentals in neighborhoods surrounding Hyde Park, it's not surprising that the Lake Pointe Park shopping center lost its anchor store.

But the fact that the Co-Op was subleasing from Certified, rather than leasing directly from the landlord, is probably why the mall managed to stay afloat at all when the Co-Op went belly-up, and not wind up like Lane's supermarket on 76th -- another casualty of the risky and shady world of south side development.

It also makes me think that Brazier and Finney must have the same amazing knack as Mayor Daley for working on a daily basis among big-time crooks, while somehow managing to keep their hands clean.


Hyde said...

Don't minimize the the first word of sub-title: Risk.

Davis and his sons have signed personal guarantees on many of these deals. Earning $4 million in fees for managing and guaranteeing hundreds of millions in acquisition, construction and leasing/sales work seems about right.

Additionally, Jared's purchase of a home in his own development is admirable - how many others are willing to put their families at the front line of mixed income development?

Finally, who would you prefer? The familiar Davis Group who lives and works in the community and gets developments done or Fernando Leal, the outsider who only seems to know how to overpay for property, tear down buildings and leave 53rd Street gap-toothed while he is unable to complete his deals.

This question will be relevant as a developer is chosen for Harper Court.

chicago pop said...

hyde is right that risk shouldn't be minimized. Fees and profits earned in risky developments in southside neighborhoods are the legitimate recompense for putting capital on the line.

That said, whether a developer lives nearby or is an outsider to my mind doesn't serve as an indicator of either honesty or ability to finish a deal. Witness Lane and Resko himself, and all the nice happy above-board stuff that goes on over in Bridgeport. It would seem best to approach developers on a case by case basis and not prejudge based on where they live.

I can't comment on whether Jared Davis' home purchase at Crown Pointe is admirable or not. If the home is in his family's neighborhood anyway (because they're local), and he upgraded to a bigger house than he had or could afford in a different neighborhood, well then, one might be able to call it admirable, or something else.

I think in all the cases presented here, the question of clout with City Hall is a big one, and the point that Novak makes in most of his articles about Davis is that he wouldn't have been able to work that $100 million in deals if he hadn't been so close to City Hall in the first place.

Elizabeth Fama said...

I'm woefully uninformed on all these issues, so I can't comment on anybody's ethics. But I just want to mention to Hyde that the question he/she poses is not that easy to answer: preferring "the familiar" and wanting players to "live and work in the community" while fearing "outsiders" are all worrisome NIMBY flags for me. I'm not saying that's your opinion at all. You clearly want development to get done. I'm just saying that sometimes you have to search for expertise and that comes from professionals who may not live here and may not be your neighbors.

chicago pop said...

Elizabeth makes a good point: the "insider" vs. "outsider" thing is residual NIMBY/localist thinking, and in fact the "local actors" in many of these development projects are not the developers at all, but non-profit partners like the FCRR who then join with developers who may or may not be local. That's one way to spread risk around and dampen the potential for corruption.

In fact, I think you could make a strong argument, as Tim Novak does in the Sun-Times, that local developers need to be looked at even more closely because of potential conflicts of interest due to local connections.

If you look at some of the projects going up in the 4th Ward, like the one on Cottage Grove and 47th, the firm joining with QCDC is from "out of town": Skilken Properties of Columbus Ohio. In this case, it means they have broader experience working with inner-city redevelopment and can apply that experience to a new environment. And they're working closely with a CDC.

I don't see the problem with that.

Hyde said...

Agreed. Being local or outside doesn't make a difference in ethics. Getting deals done does.

A responsible developer who completes projects once started is extremely important.

Specifically, Fernando Leal has not shown progress on either of his developments while we have two vacant parcels on 53rd.

This is at the same time when Unger continues apace with his high rise development.

chicago pop said...

A responsible developer who completes projects once started is extremely important.

We're on the same page there. Let's hope the 53rd Street spaces can find a developer with their act together.

Bottecchia said...

Does anyone know what sort of success Francisco Leal has had in completing projects in other places (outside Hyde Park or Chicago) and what sort of reputation his firm has elsewhere?

chicago pop said...

It's very hard to find firm, substantiated information on Leal. We'd like to do a post on the subject in the near future.

But we want to avoid stoking the rumor mill. There are a lot of claims and accusations being made about this individual and virtually none of them are substantiated or attributed to verifiable sources.

Shanty Minister said...

Hey, I just stumbled on your blog.. Love the conversation this past week. Being in the "construction" biz myself, it's not uncommon for these Federal and City projects to require the Developer live on premises for 1-3 years as a condition of the [money portion of the] deal. That has been the case for other TIFF type development deals, like the one off S. 67th, east of Stoney Island. Of course, the Developer barely lives there, and quickly moves once their "time has been served". And I would remind people that developers usually get into the biz for profit-- not out of altruistic reasons, and often with little (if any) city planning, architecture or construction training/education. And they certainly don't give a darn about "the community" they pimp with over-priced, low-quality housing. As an architect of 25 yrs, I view many urban developers as the "pimps of real estate world." Their 'work" (and resulting low performing "developments") speaks for itself. - Shanty Minister,