Daley money pit
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Published Oct. 9, 2016
Over the past nine years, two nephews of former Mayor Richard M. Daley have been involved in separate plans to redevelop a rundown warehouse on 15 acres of polluted land in Little Village just north of the Stevenson Expressway. It hasn’t turned out well for Chicago taxpayers.
First, taxpayers have to make up for $4.2 million in city pension money invested on behalf of teachers, police officers and other city workers that ended up squandered on failed development plans involving Daley’s oldest nephew, Robert G. Vanecko.
Now, taxpayers stand to lose another $4.1 million on the same property at 3348 S. Pulaski Rd.
That’s the amount of a property-tax break given to a second redevelopment deal for the site.
This one involves Vanecko’s first cousin, Patrick Daley Thompson, an attorney who helped the developers get the tax cut last year shortly before he was elected alderman of the 11th ward — the family’s power base for six decades.
It’s one of the largest tax breaks the Chicago City Council has ever given to an industrial property — about $1 million more than the tax break the Ricketts family will get from City Hall for renovating Wrigley Field, a designated Chicago landmark.
For obtaining the tax break and zoning changes for a California developer, Thompson and the law firm where he works stood to make as much as $100,000, according to records the Chicago Sun-Times obtained from City Hall. It’s unclear how much Thompson’s firm actually got paid, and he declined to say.
Thompson’s client wanted the tax cut as part of a plan to clean up the property and build a warehouse there — a project bankrolled by the California State Teachers’ Retirement System, one of the country’s largest public pension funds. His client took over the project after his cousin’s deal with the Chicago pension funds fell apart.
The Chicago pension funds got nothing when they unloaded the decrepit warehouse two years ago, dumping it on the California pension fund and its developer.
But the California retirement plan and the developer tore down the building, removed 70 tons of soil polluted with chemicals including arsenic and lead, erected a new warehouse and then flipped it to a branch of Prudential Insurance for $29.7 million last December — making $5 million to $8 million, according to sources and city records.
City Hall granted the tax break after Thompson and the developers promised the new warehouse would create as many as 250 permanent jobs.
For now, though, the 316,000-square-foot warehouse on Pulaski Road sits vacant, waiting for a tenant — the trigger that will start the clock on the 12-year tax break.
Thompson’s spokeswoman, Joanna Klonsky, says: “Ald. Thompson served as the attorney on this project prior to his 2015 election as alderman. The firm’s fees are between the client and the firm and therefore confidential.
Ald. Thompson’s firm was not involved in the acquisition of the property in question, and he was not privy to any information regarding the pension-fund investments in question.
He does not represent any clients on zoning matters in the city of Chicago, as it is prohibited by law.”
Vanecko didn’t respond to an email seeking comment.
The story of how the polluted Pulaski Road property became toxic for Chicago taxpayers begins in 2004, when Daley was still mayor. That’s when Vanecko — his sister’s oldest son — went into business with Allison S. Davis, the Chicago attorney who gave President Barack Obama his first job out of Harvard Law School, and Davis’ son Jared Davis.
Operating under the name DV Urban Realty Partners, their idea was to redevelop properties in some of Chicago’s most downtrodden neighborhoods. And they were aiming to get government pension funds to invest $100 million to bankroll their plans.
They had a hard time securing investments from pension funds, though, until the Chicago Teachers Retirement System agreed in early 2005 to put in $25 million of the money it held toward teachers’ retirement pay.
Then, the pension funds for police officers, municipal employees, city laborers and the Chicago Transit Authority also agreed to invest.
Altogether, the Davises and Vanecko wound up with $68 million from five public pension funds.
DV Urban had begun investing in real estate deals by the time the Sun-Times revealed in September 2007 that a nephew of the mayor stood to make millions of dollars from city-connected pension funds, with Vanecko asserting that he hadn’t used his family connection to get that business.
A Daley spokeswoman said at the time that the mayor hadn’t helped his nephew land the deals. But one pension board member, Judy Rice, who at the time was Daley’s city
treasurer and is now a Cook County judge, said she knew Vanecko was Daley’s nephew when she voted to invest city workers’ pensions with his company.
In November 2007, DV Urban invested $4.2 million of the pension money with Sydney Partners LLC, which then bought the Pulaski Road warehouse for $10.5 million.
Sydney — headed by Stanley and Joseph Weissbrot, Jeff Josephs and Anthony Burns — borrowed $7.85 million from LaSalle Bank. DV Urban later guaranteed to repay that loan.
That guarantee ended up preventing the city workers’ pension funds from being able to recover any of their money when the land was unloaded to Thompson’s client.
The warehouse on Pulaski — which formerly was home to Nu-Temp Corporation and Steel Sales Corporation—largely remained vacant during DV Urban’s investment, except for a month-to-month lease for a portion of the space with the Chicago water department. It used the property to park some of the trucks bought after Daley was forced to shut down the city’s Hired Truck Program when the Sun-Times revealed that City Hall had been paying nearly $40 million a year to lease dump trucks from favored companies that did little or no work.
Vanecko and Davis had collected more than $480,000 in rent from City Hall when the Sun-Times exposed the warehouse deal in June 2009. City Hall moved the trucks, and Vanecko announced he would walk away from DV Urban. Vanecko never explained whether he sold his stake in DV Urban.
In 2012, the five pension funds fired DV Urban. That set off a series of court battles in Delaware and Illinois that remain ongoing.
The pension funds hired Newport Capital Partners to sell the properties DV Urban acquired, including the Pulaski warehouse — a task Newport’s owner Derrick McGavic says should wrap up by year’s end.
The pension funds are likely to end up losing 75 percent of the money they invested with Davis and Vanecko.
It’s unclear where all of the money the pension funds invested went.
When the city pension funds invested $68 million with DV Urban, Davis and Vanecko put up an additional $3 million. Because of that small stake, DV Urban gets a share of any money Newport recovers for the pension funds by selling off other properties that DV Urban purchased.
In addition, DV Urban collected $8 million over the years in fees for managing the pension funds’ money.
During the fall of 2013, Newport got three bids for the Pulaski warehouse, including a $5.4 million offer from PanCal Pulaski LLC, a joint venture between the California teachers pension fund and Panattoni Development of Newport Beach, Calif.
Panattoni began negotiating a deal with Thompson — an attorney with the firm Burke, Warren, MacKay & Serritella — to lobby City Hall for the project. At the time, Thompson was an elected member of Cook County’s sewage-treatment agency, the Metropolitan Water Reclamation District of Greater Chicago.
On Jan. 17, 2014, Newport agreed to sell the Pulaski property to PanCal.
And Thompson and his firm were soon hired to lobby city officials about land-use uses and the tax break.
Thompson also submitted an application to Cook County Assessor Joseph Berrios seeking a tax break — under what’s called the 6(b) incentive program—to lower the tax on the industrial property by as much as 60 percent over 12 years.
That application, which remains pending with Berrios, estimated that PanCal would spend $16.3 million on demolishing the warehouse, cleaning up the soil and building a warehouse before it had any tenants signed up to lease the property.
After Thompson got Ald. Rick Munoz (22nd), whose ward includes the Pulaski site, to support the tax break, PanCal Pulaski bought the property on July 31, 2014, for $5.4 million.
The pension funds didn’t get any money from the sale. Instead, $3 million went to settle the delinquent mortgage that DV Urban guaranteed.
Another $2.4 million went into a fund PanCal could tap to clean up the pollution, which included four leaking underground storage tanks, according to the Illinois Environmental Protection Agency.
“The remediation fund approach is common in transactions such as this, when it is known that there will be some environmental clean up work that will need to be done of the property being conveyed,” says William Bullen, executive director of real estate investments for Panattoni.
Bullen says the real estate purchase was handled by a law firm in Denver, not Thompson’s firm.
A month after the sale, Thompson announced he was running for alderman but remained registered as a lobbyist for PanCal during his campaign.
He was forced into a runoff election on Feb. 24, 2105 —the same day Mayor Rahm Emanuel’s planning commissioner submitted a report estimating that PanCal’s tax break would cost local governments about $4.1 million over 12 years, including a $690,000 loss for City Hall.
Thompson won election as alderman on April 7, 2015. A week later, the City Council approved PanCal’s tax break.
Thompson has ceased his lobbying activities at City Hall, though his law firm still represents PanCal.
PanCal sold the warehouse for $29.7 million on Dec. 11, 2015, to PRII Pulaski LLC, a company managed by Prudential Insurance. It now stands to benefit from the tax break Thompson secured, once it finds someone to lease at least half the space.
Contributing: Data Reporting Lab editor Darnell Little