Why city pension funds want firm with Daley links out

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Robert G. Vanecko, in 2007 | Richard A. Chapman~Sun-Times

Updated: March 21, 2012 8:03AM

I t’s been six years since five Chicago government pension plans hired DV Urban Realty — a start-up investment firm founded by then-Mayor Richard M. Daley’s nephew Robert G. Vanecko and President Barack Obama’s friend and former boss Allison S. Davis — to manage $68 million in retirement funds.

Those investments haven’t gone well for the pension funds that represent Chicago teachers, police officers, other city employees and transit workers. The funds have paid DV Urban a total of $7.2 million, including $4.7 million in fees to manage the small share of the pension funds’ money and another $2.5 million for a sister company to oversee the operations of three buildings bought with pension money.

Pension officials — including Mayor Rahm Emanuel’s two top financial advisers — are unhappy. By their estimation, the value of the funds’ real estate investments with DV Urban has fallen by 28 percent, or about $19 million.

That’s the main reason the funds want to wrest control of the real estate investments they’ve made with DV Urban, according to a lawsuit they filed this month in Delaware, where DV Urban was incorporated.

The pension funds’ investment with DV Urban has “underperformed the market and its peers and was likely to lose a material portion of the invested capital,” according to the suit., which says the pension funds bosses’ “confidence in [DV Urban] was (and remains) low.”

DV Urban — which Vanecko left in 2009, after the Chicago Sun-Times revealed his role in the pension deals and a federal grand jury subpoenaed records from his firm and the pension funds — is fighting to keep control of the real estate investments it made with the pension money. In a countersuit filed in Cook County, the firm, now run by Davis and his son Jared Davis, says it’s “engaged in significant complex and critical negotiations” to develop some of the properties.

DV Urban used the Chicago government pension funds’ money to buy eight properties, including a vacant lot that once housed a Dominick’s grocery story at 3030 N. Broadway, an office building at 217 N. Jefferson St., and a boarded-up building at 2400 S. Michigan Ave. that once housed the Chicago Defender newspaper.

“Many of these projects are in various stages of development,” says DV Urban lawyer Edward T. Joyce. “Just to fire DV and bring somebody else in . . . is just a disaster.”

Joyce questions the pension funds’ claim that the real estate investments have dropped in value.

“It’s almost an impossible calculation to make,” he says. “Did they appraise the assets? Are they worth less than they paid for it?”

DV Urban bought the building using $9.9 million in money from the pension funds, records show. The pension funds will get back about $9 million from the sale, according to DV Urban’s countersuit.

Davis, 72, and Vanecko, 47, both of Chicago, founded DV Urban in 2005. Vanecko has given sworn testimony in a legal deposition that his father, Dr. Robert M. Vanecko, introduced him to Davis, a well-known lawyer and developer.

Originally, DV Urban was aiming to raise $100 million, mostly from government pension funds, and planned to invest the money buying properties in “neglected” Chicago neighborhoods, possibly including the area around Washington Park, which Daley hoped would be the center of the 2016 Summer Olympcs that Chicago failed to win the right to host.

Vanecko is still fighting a lawsuit over DV Urban’s deals — a suit the pension funds cite as another reason they want to dump DV Urban. In that suit, Michael Dudek — who was a top aide to the late Cook County Treasurer Edward Rosewell — is asking a judge to award him $100,000 because, he says, Vanecko hired him to help DV Urban raise money from government pension funds and from Harris Bank but then refused to pay him.

Vanecko’s lawyers, including former Cook County State’s Attorney Richard Devine, have said in court that they are trying to negotiate a settlement.

Still, Dudek’s lawsuit has rankled city pension officials. They say DV Urban agreed that it wouldn’t hire any outside consultants to raise money and then, after making the deal with Dudek, Vanecko “then, by letter, represented that no consulting agreement was entered into,” according to court documents filed by pension fund attorneys William Marovitz and Fred Heiss in the Dudek case. “Following the representation that no consulting agreement was entered into, Vanecko departed the partnership.”

Vanecko is the eldest grandchild of the late Mayor Richard J. Daley.

Davis became a central figure in the trials of Rezko, a top fund-raiser for former Gov. Rod Blagojevich, and William F. Cellini, a longtime fund-raiser for Illinois Republicans, who were both convicted on corruption charges.According to testimony, once, during a meeting with Rezko and another Blagojevich fund-raiser, Christopher Kelly, Davis suggested they could raise money from Thomas Rosenberg, a Hollywood movie producer who also owned an investment firm that managed state pension money. Rosenberg tesified he was told he would lose his state deal unless he gave money to Blagojevich’s campaign. Cellini was convicted in the shakedown of Rosenberg. Davis was never charged with any crime.