How to prevent bad actors from ransacking the Chicagos South Side rental market

The mid-century tall residential tower at 7250 S. South Shore Drive should be a success in affordable housing. Instead, the building is a nearby wreck.

An Ohio-based nonprofit, the Better Housing Foundation, bought the building and 80 others in the south side between 2016 and 2018, leaving almost all of them in disrepair and obstructing the court. housing.

With real estate investors flocking to the south side these days, the time has come for the city to send a strong and clear message: the days of the slum are over. If you are buying property in Chicago, do it right or face the consequences.

Crains Chicago Business and the Chicago Tribune reported that BHF is part of a wave of out-of-town real estate entities crossing the south side, purchasing and packaging dozens of relatively apartment buildings inexpensive in the hope of making big profits from rents. .

The south side looks very attractive from an investment point of view, an expert told us. It is one thing to buy buildings, but you have to manage them. The idea that you can sit in California somewhere and let the money flow is a tricky proposition.

Another company outside the city, Florida-based EquityBuild raised $ 135 million 900 investors to buy 1,674 rental units, mainly on the south side. But in 2018, the U.S. Securities and Exchange Commission decided that EquityBuilds owners Jerome Cohen and his son Shaun did not reward investors for building financial returns, but rather ran a Ponzi scheme, using money from new investors to pay for old ones. those. The SEC began liquidating the portfolio in 2018.

Thirty-six EquityBuild buildings may soon hit the market, many of which have problems with deferred maintenance and lawsuits in housing courts.

What can the city do? For starters, Mayor Lori Lightfoot could provide the building department with follow-up and focus more attention on multi-family building complexes belonging to real estate investment groups. These are buildings, given their independent ownership, which deserve a more regular and rigorous inspection. Building permits for this category of buildings should also be monitored more closely to ensure that the work is carried out in accordance with the requirements. Fines and court costs, as justified, could do wonders for aligning many of these entities.

Federal law enforcement officials, say affordable housing experts, should also take a closer look at the purchases of several buildings that target South Side properties, particularly those involving investment companies such as EquityBuild who seem to overpay while promising big profits to investors.

Better Housing Foundations' efforts have been a spectacular failure. The organization purchased more than six dozen Chicago-area multi-unit buildings using $ 170 million of tax-exempt municipal bonds sold to investors by investors ; intermediary of the Illinois Finance Authority. But instead of repairing the structures, BHF, now bankrupt, burned the cash as the buildings deteriorated. The organization also defaulted on bond payments.

I am angry and disappointed with this borrower, explained to us the executive director of the Illinois Finance Authority, Christopher Meister.

IFA has a good track record of issuing tax-exempt bonds for non-profit hospitals, local governments and higher education institutions, but we we ask if this was not in its role in the issue of these bonds on behalf of BHF. In the future, we believe that IFA should work more closely with another state agency, the Illinois Housing Development Authority, which specializes in the issuance of affordable housing bonds.

Meanwhile, Illinois Attorney General Kwame Raoul is investigating the BHF. We called Raouls' office to ask questions about it, but they couldn't answer us. In an apparent separate investigation, the SEC assigned BHF last October to search for the organization's purchasing documents, the publication The Bond Trader reported this week.

Chicago can be a tough city to find an affordable place to rent. And large-scale investors, bad and incompetent, only make matters worse by littering the city, especially on the south side, with dozens of dilapidated and habitable buildings.

Chicago has long had its fair share of bad local players in the South Side real estate game. The last thing the city needs are under-regulated foreigners who throw themselves for quick, undeserved money.

Send letters to [email protected].