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Cash-strapped Zion may sell city hall to felon’s finance company

ZiCity Hall 2828 Sheridan Road. | Michael Schmidt~Sun-Times Media

Zion City Hall at 2828 Sheridan Road. | Michael Schmidt~Sun-Times Media

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Updated: February 18, 2012 8:05AM

Facing a growing budget crisis, Zion city officials entered talks to sell City Hall to a politically connected finance company controlled by a convicted felon, the Chicago Sun-Times has learned.

During closed session City Council meetings and private talks, Zion commissioners discussed selling City Hall and surrounding property to Preferred Capital Services, which is run by Paul Graffia. Graffia spent 64 months in federal prison for his part in schemes to use “shell” financing companies to defraud commercial real estate developers, according to court papers.

Mayor Lane Harrison said the city’s goal was to put the property located in the heart of the north suburb’s downtown retail district back on the tax rolls.

The proposed deal called for Preferred Capital Services to buy City Hall and lease it back to Zion until a new public building could be built, sources said.

City Hall has not been listed for sale publicly. But the City Council voted to change zoning on land adjacent to City Hall from residential to commercial. The city also had that property appraised, according to a redacted contract obtained through the Freedom of Information Act that sources confirmed was for the appraisal of City Hall. Harrison said the land appraised for about $1 million.

Graffia told the Sun-Times that Zion leaders approached him about buying City Hall because the building “is obsolete, not functional and has code violation issues” that will be expensive to repair. Graffia, 64, of Mount Prospect, said he was reluctant to comment on specifics because negotiations have stalled.

Later, Graffia did not return messages. His wife, Marilynne Graffia, a principal of Preferred Capital, said her husband did not want to discuss his felony record.

Zion Commissioner Shantal Taylor said former city finance director Larry Pannell — who recently reisgned his full-time post to become city manager in Electra, Texas, and was re-hired by the city as $75-an-hour consultant to essentially continue his duties — told the City Council other banks had rejected proposals to buy City Hall, and Preferred Capital was Zion’s only option.

Taylor sent Pannell an email titled “Impropriety Concerns” seeking to view documents that show other banks passed on buying and leasing back City Hall. Pannell’s email reply denied both ‘impropriety’ and her request to view documents.

“Preferred Capital is tied into some areas that have come up as questions for not being good for the city, like Market Square and the whole baseball situation that are under scrutiny and possibly investigation. Adding City Hall to that pile just doesn’t make sense,” Tayor said. “I did stand in the way. It wouldn’t be in our best interest, no matter how bleak our financial position.”

Graffia already has a serious stake in the success of Zion’s downtown district. Preferred Capital Services provided a more than $12.4 million construction loan for Market Square — owned by a company controlled by Richard Delisle, a prolific developer in Zion with local clout.

Delisle-controlled companies have received millions of dollars in tax breaks, rent payments and tax increment financing funds from Zion. Preferred Capital’s construction loan for Market Square is guaranteed in part by $7.6 million in city tax-increment-financing funds, according to public records.

Preferred Captial also was involved in failed negotiations to finance a permanent stadium for the Lake County Fielders on land owned by a separate Delisle-owned company, according to public records.

The Fielders — an independent minor league baseball team whose owners include Academy Award-winner Kevin Costner — filed a $10.7 million lawsuit claiming the city, Harrison and Rogers individually and stadium property owners, specifically Delisle, engaged in fraudulent actions that killed stadium construction. Neither Preferred Capital nor Graffia are defendants in that case. But Preferred Capital is referenced as a finance company picked by Delisle that may have become a road block to getting state funding, according to court papers.

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