City pension funds could lose $1 million in deal with Daley nephew
August 29, 2011 1:24AM
The former home of the Chicago Defender was bought for $4.1 million in a deal that Robert Vanecko and Allison Davis helped finance with pension funds. | Scott Stewart~Sun-Times
Updated: November 4, 2011 9:20AM
The historic, now boarded-up building that once housed the Chicago Defender newspaper is in foreclosure, and, as a result of that, five of the city’s struggling pension funds could end up losing $1 million.
A failed plan to rehabilitate the Art Deco/Moderne building was one of the deals put together by former Mayor Richard M. Daley’s nephew, Robert G. Vanecko, and his politically connected partner, Allison S. Davis, in a start-up real estate investment company that five city pension funds hired in 2006 to manage $68 million in retirement money for teachers, police officers, CTA employees and other city workers.
About a year after they were hired to manage the pension money, Vanecko and Davis joined politically connected restaurateur Matthew A. O’Malley and his partner, Brian O’Connell, in a deal to buy and rehab the shuttered building at 2400 S. Michigan that last housed the Defender, the city’s largest black-owned newspaper.
Vanecko and Davis put $1 million of the pension money into the deal, and O’Malley and O’Connell got a $3.3 million loan from First Chicago Bank & Trust to buy the building for $4.1 million on June 8, 2007. O’Malley, O’Connell and Vanecko and Davis’ DV Urban Realty all signed off on the bank loan, guaranteeing they would repay it.
They closed on the Defender building a day after Jeffrey Duerwachter — a Wilmette man who worked on the set of the “Batman” movie that was filmed in Chicago — bought it from the estate of Lev Stratievsky, a Russian immigrant who died in federal custody as he and his son, Boris Stratievsky, were awaiting trial on charges that they tried to launder money for Ukrainian drug dealers.
For owning the building for a day, Duerwachter made a $413,000 profit. He paid $3.72 million and flipped it to O’Malley’s group for $4.1 million.
O’Malley’s group never made public their plans, but there was talk that they planned to convert the building, just a few blocks west of McCormick Place, into a restaurant or hotel.
But the building remains boarded-up amid the nationwide real estate slump.
The bank loan on the historic property originally was due Dec. 8, 2008. But even after O’Malley and O’Connell renegotiated the terms of the loan, they still hadn’t repaid it by March 3, 2011, court records show, and First Chicago Bank filed a foreclosure suit on July 8 — the same day federal regulators seized the bank and turned it over to Wintrust Financial Corp. The foreclosure lawsuit seeks $3.4 million in principal, interest and penalties from O’Malley, O’Connell and DV Urban.
Vanecko — who has said he sold his stake in DV Urban in late 2009, as a federal grand jury began investigating his company — and Davis, O’Malley and O’Connell didn’t respond to requests for comment on the foreclosure.
O’Malley is a managing partner of Millennium Park’s Park Grill under a 20-year deal he and his investors struck with the Chicago Park District while he was involved with a top park district official and had a child with her.
O’Malley is seeking the park district’s permission to leave the restaurant, a source told the Chicago Sun-Times.
Pension officials have declined to discuss the foreclosure of the Defender building.
The pension funds have been struggling financially as the recession caused the value of their investments to drop, even as City Hall has failed to make its promised pension contributions. This has left the funds short hundreds of millions of dollars. Taxpayers must make up any shortfalls.
The Defender deal is among eight real estate investments that Vanecko and Davis made using the city pension money. Half of those deals have had financial problems, including one that ended up in bankruptcy court.
Under their deal with the pension funds, Vanecko and Davis were guaranteed at least $3 million in management fees — and as much as $8 million — for managing the city pension money under contracts that run through Dec. 31, 2014.