The tall midcentury residential tower at 7250 S. South Shore Drive should be an affordable housing success story. Instead, the building is a near wreck.
An Ohio-based not-for-profit, the Better Housing Foundation, bought the apartment building and 80 others across the South Side between 2016 and 2018, leaving nearly all of them in poor condition and clogging up Housing Court.
With real estate investors flocking to the South Side these days, now is a good time for the city to send a loud and clear message: The days of the slumlord are over. If you’re buying up real estate in Chicago, do it right or face the consequences.
BHF is among a wave of out-of-town real estate entities rolling across the South Side, buying and packaging up scores of relatively low-cost apartment buildings in hopes of making big profits through rents, Crain’s Chicago Business and the Chicago Tribune have reported.
“The South Side is looking very attractive from an investment standpoint,” one expert told us. “It’s one thing to buy buildings, but you have to manage them. The idea that you can sit back in California someplace and let the cash flow in is a tricky proposition.”
Another out-of-town company, Florida-based EquityBuild, raised $135 million from 900 investors to buy 1,674 rental units, mainly on the South Side. But in 2018, the U.S. Securities and Exchange Commission ruled that EquityBuild’s owners, Jerome Cohen and his son Shaun, weren’t rewarding investors from financial returns from the buildings, but instead were running a Ponzi scheme, using the money from new investors to pay off older ones. The SEC began liquidating the portfolio in 2018.
Thirty-six EquityBuild buildings soon could hit the market, many with deferred maintenance issues and Housing Court cases against them.
What can the city do? To begin with, Mayor Lori Lightfoot could staff up the Building Department to track and focus more attention on packages of multi-family buildings owned by real estate investment groups. These are buildings, given their arms-length ownership, that merit more regular and rigorous inspection. Construction permits for this class of buildings should be monitored more closely as well to make sure work is being done as prescribed. Fines and court costs, as warranted, could do wonders to bring many of these entities into line.
Federal law enforcement, we are told by affordable housing experts, also should take a closer look at multiple building purchases that target South Side properties, especially those involving investment companies such as EquityBuild that appear to overpay while promising investors big profits.
Better Housing Foundation’s efforts were a spectacular fail. The organization bought more than six dozen Chicago area multi-unit buildings using $170 million in tax-exempt municipal bonds sold to investors through the Illinois Finance Authority. But instead of fixing up the structures, the now-bankrupt BHF burned through the cash as the buildings deteriorated. The organization also defaulted on the bond payments.
“I am angry and I am disappointed with this borrower,” Illinois Finance Authority Executive Director Christopher Meister told us.
IFA has a good record of issuing tax-exempt bonds for not-for-profit hospitals, local governments and institutions of higher education, but we wonder if it was out of its element in issuing such bonds on behalf of BHF. On these kinds of deals in the future, we think the IFA should work more closely with another state agency, the Illinois Housing Development Authority, which specializes in affordable housing bond issues.
Meanwhile, Illinois Attorney General Kwame Raoul is investigating BHF. We called Raoul’s office to ask about that, but they failed to get back to us. In an apparent separate investigation, the SEC subpoenaed BHF last October seeking the organization’s records about the purchases, the publication The Bond Trader reported this week.
Chicago can be a tough town in which to find an affordable place to rent. And bad and incompetent larger-scale investors only make matters worse by littering the city, especially on the South Side, with scores of dilapidated and inhabitable buildings.
Chicago has long had its fair share of homegrown bad actors in the South Side real estate game. The last thing the city needs is under-regulated outsiders jumping in for a quick and unmerited buck.
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