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Cashing in on the CHA — a Sun-Times/BGA special Watchdogs report

Diane L. Gottlieb's building (second from left) in the 1600 block of South Homan Avenue in North Lawndale has been the subject of a city lawsuit over code violations since July 2014. Gottlieb gets $1,925 a month in rent for two apartments there leased by CHA voucher-holders. The CHA covers 87 percent of that. | Ashlee Rezin / Sun-Times

From her 49th-floor condo at Lake Point Tower, Diane L. Gottlieb oversees a public housing empire that brings her nearly $1 million a year in government-subsidized rent.

Gottlieb, 55, has a growing portfolio of apartments — from swanky digs in a Gold Coast high-rise to rundown buildings on the South Side and the West Side — that she leases to dozens of tenants whose rent is covered in full or in part by the Chicago Housing Authority.

The buildings include a brick three-flat in the 1600 block of South Homan in North Lawndale, one of Chicago’s poorest neighborhoods, that Gottlieb bought three years ago for $30,000 after the property went into foreclosure.

Today, she gets back more than a tenth of her purchase price every month — $3,032 — in rent from that building, with two-thirds of that coming out of federal tax dollars managed by the CHA.

Diane Gottlieb leaves housing court at the Daley Center on April 13. | Ashlee Rezin / Sun-Times

Diane Gottlieb leaves housing court at the Daley Center on April 13. | Ashlee Rezin / Sun-Times

Gottlieb owns seven of the 30 residential buildings on this block, which is littered with trash, vacant lots and boarded-up homes. Her tenants on South Homan include 21 people who live in 10 apartments with rent subsidies provided by the CHA’s Housing Choice Voucher Program, commonly known as Section 8.

Six of her buildings on South Homan have a history of building-code violations.

That’s not unusual for landlords renting to CHA voucher-holders, according to a Chicago Sun-Times and Better Government Association investigation that found that thousands of voucher tenants are living in buildings that have been cited by City Hall inspectors over the past five years for code violations.

The Sun-Times and BGA also found that, despite the CHA’s massive “Plan for Transformation” of public housing, most of the more than 44,000 voucher tenants continue to live in high-crime, poverty-riddled neighborhoods on the South Side and the West Side where the bulk of the housing agency’s tenants lived in the days of the old CHA high-rise projects.

CHA about the series boxThe CHA began demolishing Cabrini-Green, the Robert Taylor Homes and other projects 16 years ago, aiming to help people find better housing options. Since then, providing housing for poor people has become a growth industry for private landlords that lap up government funding by catering to the need for low-income housing.

And the CHA’s largest landlord is a company whose investors include Gov. Bruce Rauner.

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Since 2000, there has been a 40 percent drop in the number of people living in buildings owned by the CHA — and a 40 percent rise in the number of poor people living in privately owned apartments and houses leased with the help of vouchers.

Four of every 10 voucher tenants live in buildings that have had at least one code violation in the past five years, the Sun-Times and BGA found. Some of the citations were issued while the buildings were vacant, but many occurred while CHA tenants lived in them.

The problems have ranged from no heat, to rodent and structural problems, to minor issues such as landlords failing to post their names and addresses or those of a management company on buildings.

EARLIER STORIES

Chicago’s public housing divide — March 13, 2016

How housing choice aid program works — March 13, 2016

You paid to build them, now you pay to lease them — March 14, 2016

Emanuel blasts CHA voucher program as policy ‘gone awry’ — March 16, 2016

CHA moves to strip aid from suspect in gym murder — March 20, 2016

The Chicago Department of Buildings doesn’t routinely notify the CHA about code violations.

“The city and CHA are working to coordinate information and develop a process that will address building-code violation information when necessary,” says Molly Sullivan, a CHA spokeswoman. “CHA receives notification from the city when violations are so serious that they require . . . tenants to be vacated.”

Private landlords collectively are paid more than $560 million a year for voucher households, according to CHA records. More than 76 percent of that — $430 million — is covered by the CHA using money from the federal Department of Housing and Urban Development.

***

Gary R. Carlson is among the landlords with the most units in the housing voucher program.

“I’ve been called a slumlord,” Carlson says. “That’s not really nice for me. Anything the public don’t like, we’re slumlords.”

Carlson, 64, a former auto mechanic, began buying apartment buildings on the Northwest Side in the early 1980s. Today, he owns about 60 buildings with more than 500 apartments in and around Albany Park and Irving Park.

Carlson takes in $364,150 a month from renting 333 apartments to 627 CHA voucher-holders, records show. The CHA covers 75 percent of his rents, which range from $820 to $1,550 a month.

Over the past five years, city inspectors have found 589 code violations at 47 of Carlson’s buildings where CHA tenants live. Most of the violations — including citations for rodents, roaches and a lack of smoke detectors — were quickly resolved.

“I don’t rent no garbage,” Carlson says. “You’re not gonna see any granite countertops or jacuzzis in my buildings. But you’re not gonna see any squalor, either.

“Nobody deserves to live in substandard or dangerous conditions, that kind of stuff.”

Carlson says he’s frustrated with the CHA, which pays two companies to manage the voucher program.

“We have no interaction with the CHA,” Carlson says. “None. Zero. There’s no rhyme or reason as to how they determine rent.”

Carlson — who has made $9,250 in political contributions since 2001, mostly to Ald. Margaret Laurino (39th) — manages his apartments with a small staff. Carlson sets his own rules for his tenants. Key among them: He insists on visiting prospective tenants before he’ll rent to them.

“No home visit, no rent,” he says. “If you don’t feel comfortable, don’t rent to them.’’

And Carlson isn’t afraid to evict problem tenants. Last year, he sued to evict 17 of his tenants, about half of them voucher-holders.

“You’ve got to pay your rent on time and live in peace,” he says. “I don’t like the police coming to my buildings.”

Sometimes, CHA voucher-holders have more people living in an apartment than authorized, Carlson says — often a boyfriend staying with the woman who has the voucher. He has a name for the boyfriends.

“They’re always going to lie because there’s going to be a ‘man pet,’ ” Carlson says. “You deal with all kinds of people — crazies, lazies.”

Still, he says, “They all deserve a place to live.”

***

Steve Joung, chief executive officer of Pangea Properties, at the company's South Shore office, 2231 E. 71st St. | Ashlee Rezin /S un-Times

Steve Joung is chief executive officer of Pangea Properties, the largest landlord in the CHA’s voucher program. | Ashlee Rezin / Sun-Times

Amid the housing market crash and three years after selling an online payday-loan company for millions of dollars, Steve Joung and Al Goldstein — Chicago tech entrepreneurs — formed Pangea Properties and began buying up hundreds of distressed buildings on the South Side and the West Side.

“We don’t buy bad buildings here and there,” says Joung, the company’s chief executive officer. “We buy an entire block.”

Pangea, whose investors include Rauner, owns and manages more than 8,000 apartments in Chicago and the suburbs — 1,200 of them rented by CHA voucher-holders whose households have a total of 2,111 people, as of January.

The largest landlord in the voucher program, Pangea collects nearly $1.1 million a month from voucher tenants, with the CHA covering 77 percent of that.

“Our mission was to provide investment in underserved neighborhoods,” Joung says. “So, by definition, we’re going to be attractive to the Section 8 clientele.”

The typical apartment in a Pangea building rents for about $800, according to Joung, who describes the company’s properties as “workforce housing.”

Over the past five years, city building inspectors have found 3,597 code violations at 300 addresses Pangea now leases to voucher tenants.

Joung says Pangea often buys buildings that have problems, then fixes them up.

To address code violations and tenants’ complaints, the company has its own call center, data analysis system and crews.

1734 E. 71st St. | Ashlee Rezin / Sun-Times

The CHA covers 95 percent of the $2,530 a month Pangea Properties collects for three apartments leased to voucher-holders in this building in the 1700 block of East 71st Street. Gov. Bruce Rauner is among Pangea’s investors. | Ashlee Rezin / Sun-Times

Showing off Pangea properties in South Shore, Joung points out new security cameras in the courtyards, free Wi-Fi for tenants, fresh paint and contact information for his company that’s posted in vestibules so tenants know where to go with complaints. Pangea also has offices in six different “zones” in the city.

“Our residents know exactly where to find us,” he says. “We don’t drive in once a month to collect rents.”

Since 2008, Pangea, Joung and the company’s board members have made campaign contributions totaling more than $59,000 in local and state races, including $19,000 to Mayor Rahm Emanuel, $11,000 to Ald. Michelle Harris and her 8th Ward Democratic organization and $6,300 to Rauner.

“I give to both sides of the aisle,” Joung says,“to those who improve the lives of people of Illinois.”

Gov. Bruce Rauner. AP file photo

Gov. Bruce Rauner. AP file photo

Rauner owns stock worth more than $5,000 in Pangea and made income in excess of $1,200 in 2014, according to a financial disclosure statement the governor filed last May.

The governor’s stake in Pangea is less than 5 percent, Rauner press secretary Lance Trover says. “He has always been a small, passive investor and has never had any involvement in the management or operation of” the company, Trover says.

***

The CHA gets an average of 570 complaints a month from its 44,000-plus voucher-holders, according to Sullivan.

Those complaints go to CVR Associates of Tampa, Fla., one of the two companies the CHA contracts with to run the voucher program.

Last year, CVR billed the CHA $16.7 million to administer the voucher program in ZIP codes running in an arc from Rogers Park to Beverly. That includes inspecting apartments, certifying tenants’ income, running a call center and marketing the program.

A second company, Nan McKay & Associates of El Cajon, Calif., billed the agency $10.3 million to oversee vouchers on the West Side, the Northwest Side and the Southwest Side, as well as to administer the wait list citywide for the program.

Another contractor — Screening Reports Inc., of Wood Dale — screens credit histories and runs criminal background checks on tenants. The CHA gave the company a three-year contract last fall worth $2.4 million. Those reports aren’t shared with landlords.

Over the past four years, the CHA also has paid two other entities — a company and a not-for-profit — nearly $4.1 million to help 1,115 voucher-holders rent homes in low-poverty neighborhoods, where less than 5 percent of the population lives in subsidized housing. These “opportunity areas” include downtown, Lincoln Park and other middle- and upper-income neighborhoods.

Housing Opportunities Unlimited of Boston got nearly $1.1 million to provide “mobility counseling services” between July 2012 and the end of 2014, when CHA officials determined it didn’t meet contract goals.

Housing Choice Partners of Illinois, a not-for-profit, has been paid nearly $3 million since July 2012 and has exceeded its mobility services goals, Sullivan says.

Its duties include making follow-up visits with tenants and promoting a property-tax savings program for “opportunity-area” landlords. That program, administered by the Cook County clerk’s office, typically saves landlords between a few hundred and a few thousand dollars in property taxes.

Two years ago, the CHA came under fire for paying extravagant rents — as high as $57,600 a year — to lease in these opportunity areas and agreed to slash those rents in half. Last year, HUD blasted the program, urging the CHA to end it within a year.

The CHA says it’s phasing out the costliest of those “exception-rent” deals by the spring of 2018.

***

1665 S. Homan Ave. | Ashlee Rezin / Sun-Times

Diane Gottlieb paid $30,000 for this three-flat in the 1600 block of South Homan Avenue, which she rents to three CHA voucher-holders for a total of $3,032 a month. The CHA covers 66 percent of that.| Ashlee Rezin / Sun-Times

Gottlieb is among the landlords cashing in on exception rents.

She bought five condos at 21 E. Chestnut, near Water Tower Place, in the 1990s for a total of $532,500.

CHA voucher-holders lease those condos — three of which are in the exception-rent program — at a total monthly rent of $10,169. The CHA pays 90 percent of that.

The condo association of the building on Chestnut has sued Gottlieb for failing to pay more than $50,000 in monthly assessments on four of the condos she has leased to CHA tenants, court records show. A judge ruled against her in each case, most recently in December.

In all, Gottlieb collects a total of $81,078 a month in rent for leasing 68 apartments, condominiums and houses to voucher-holders whose households total 190 people, records show. The CHA pays 80 percent of that.

In the past year alone, she has bought 11 houses and buildings, most of them in North Lawndale and Roseland. Seven of those properties cost her less than $20,000 each.

“I like the Lawndale area,” Gottlieb says. “I think it’s going to come back.”

1642 S. Homan Ave. | Ashlee Rezin / Sun-Times

One CHA voucher-holder pays Diane Gottlieb $37 a month to live in this house in the 1600 block of South Homan Avenue. Gottlieb gets the remaining $904 in rent from the CHA. | Ashlee Rezin / Sun-Times

Gottlieb also manages properties for other landlords. In 2014, state regulators suspended her real estate license, saying she had collected four months’ rent from the CHA but failed to turn over that money to the building’s owner. Gottlieb agreed last summer to have her license placed on probation for two years, ending the suspension.

Over the past five years, city building inspectors have issued 342 code violations at 22 of her properties that have tenants leasing with CHA vouchers.

Last summer, a judge ordered her to pay $10,560 after city inspectors cited her for having a buckling brick wall, rotting window frames, a crumbling chimney and other code violations at a three-story building in the 1600 block of South Homan that has two voucher tenants. That case has been pending since July 2014.

Gottlieb points out that each building with voucher tenants was inspected by the CHA’s contractors and deemed safe.

“They’re inspecting different things, different guidelines,” Gottlieb says of the building department and CHA inspectors. “The CHA tenant could have been in there a few years, and the city comes out and finds something wrong.

“You can find a city code violation on every property.”

Mick Dumke, Tim Novak and Chris Fusco are Sun-Times reporters. Brett Chase is an investigator with the Better Government Association.

Contributing: Data Reporting Lab editor Darnell Little