Who said that Obama did anything illegal? Illinois is a "pay to play" state, and Obama had at least one friend who was more than happy to pay. A lapse in judgment on the part of Obama? Maybe. Regardless, the Chicago Sun Times, which has lavished favorable attention on Obama, decided to fill in a few holes.
The rest of the Rezko story:
Broken promises, broken homes
April 24, 2007
BY TIM NOVAK Staff Reporter/tnovak@suntimes.com
Two decades ago, Antoin "Tony' Rezko was running a food company that peddled hot dogs on Chicago's beaches. Daniel S. Mahru supplied the ice.
These businessmen had a brainstorm for a new venture -- rehabbing rundown buildings for poor black families.
Rezko and Mahru had no construction experience. Yet City Hall gave their new company, Rezmar Corp., a $629,000 loan to help fix up an abandoned apartment building at 46th and Drexel.
They had applied for the loan just six days after Richard M. Daley won his first term as mayor in 1989, having campaigned on a promise to build more housing for the poor.
Rezko and Mahru got the loan four months later, and quickly became one of the Daley administration's favored developers. They got deal after deal -- between 1989 and 1998, more than $100 million from the city, state and federal governments and bank loans to rehabilitate 30 buildings in Chicago.
Rezmar was paid at least $6.9 million to develop those apartments.
Taxpayers have lost $5.7 million in grants and loans written off by the Daley administration, a Chicago Sun-Times investigation has found. Millions more could be written off, based on court records and interviews.
And the IRS has so far demanded that corporations repay $7.8 million in tax breaks they got for investing in Rezmar apartments that failed to provide low-income housing for at least 15 years.
Rezmar was supposed to provide 1,025 apartments for the poor. But today:
• Six of its 30 buildings are boarded up.
• Seventeen went into in foreclosure, most after Rezmar abandoned them.
• An 18th building is being foreclosed on by the state. Rezmar walked away from it, leaving it to the corporate investors, who got a state loan to try to save it but failed. The building is now boarded up.
• Hundreds of apartments are vacant, most in need of major repairs.
"Every one of these properties has failed,' said Phillip Kupritz, the architect on every Rezmar low-income rehab.
In a brief interview, Mahru said, "We did our best.'
Rezko did not respond to interview requests regarding the low-income housing deals. Rezko is under federal indictment on unrelated charges, accused of demanding kickbacks from companies seeking state business under the Blagojevich administration. He's also charged with fraudulently obtaining a $10 million loan for pizza restaurants he began while fixing up low-income buildings with tax dollars.
'I sold him ice'
Rezko, a native of Syria, came to Chicago in the late 1970s to study engineering at the Illinois Institute of Technology. He joined an engineering company, designing nuclear power plants. He left to design roads for the state Transportation Department, making $21,590 in his one year there.
In 1984, Rezko went to work for Crucial Concessions Inc., owned by Herbert Muhammad, whose father, Elijah Muhammad, founded the Nation of Islam. Herbert Muhammad also was the longtime manager of boxing great Muhammad Ali. Crucial had a contract with the Chicago Park District to sell food on the beaches and in many South Side parks. Rezko was running Crucial when he met Daniel Mahru.
"That's an interesting story,' Mahru said. "He sold food along the beaches, and I sold him ice.'
Mahru, chief executive officer of Automatic Ice Inc., which leases ice makers to bars, hotels and restaurants, grew up on the North Shore. He had been an attorney with a big Chicago law firm.
He and Rezko incorporated Rezmar in January 1989, when Chicagoans were focused on Daley's campaign to oust Mayor Eugene Sawyer. Daley won, and Rezmar came seeking funding from City Hall.
"Rezmar Corp. expects this project to be the first of many during the next few years,' Mahru wrote in Rezmar's first application to the city Housing Department.
And it was.
As Rezmar's loan application was pending, Daley reformed the Housing Department. Daley said he found that housing officials were giving loans to their cronies. So the mayor's staff would now decide who got the money.
And his staff liked Rezmar, which got more than $24 million in loans and $8.5 million in federal tax credits from the city to rehab 14 buildings during Daley's first six years as mayor. Daley's top advisers signed off on those deals before the City Council approved them. Among the staff, according to records and interviews, was Daley's longtime friend Tim Degnan, who ran the City Hall patronage office.
"You trying to put me in the middle with Rezko?' Degnan said in a brief phone conversation. "I don't recall anything about Rezko.'
All 14 of those buildings ended up in financial straits. Today, three are boarded up.
Problems soon developed
How did inexperienced developers like Rezko and Mahru get money from the city, state and banks? It was the people Mahru hired, and his business acumen, said Robin Coffey, a vice president at Harris Bank.
"It was his team,' Coffey said. "It was his management style. He was using contractors we knew. He was outsourcing management.'
Along with the city, Harris funded Rezmar's first project in 1989. Over the years, Harris gave Rezmar more than $10.6 million to help rehab 18 buildings. Harris also put in additional money, purchasing some of the $50 million in federal tax credits Rezmar obtained from the city or state for the projects.
Two buildings Harris funded -- at 5751-5759 S. Michigan and 7000-7010 S. Sangamon -- began having problems within a year or two, Coffey said.
"By year five, it wasn't in great condition,' she said of the Michigan property. "It had vacancies, high turnover.'
The bank put part of the blame on the neighborhoods and kept giving Rezmar money.
Harris has lost at least $1 million on Rezmar loans. And the bank has had to repay the IRS for some federal tax credits it got by investing in Rezmar buildings.
City knew of problems
Mahru ran Rezmar's day-to-day operations.
Rezko was the schmoozer. He showered politicians with money for their campaign funds and got others to do the same. He gave to Democrats -- foremost among them former Cook County Board President John Stroger, Gov. Blagojevich, Daley and Sen. Barack Obama. Rezko gave to Republicans, too -- among them former Gov. Jim Edgar, the late Rosemont Mayor Don Stephens and President George W. Bush.
He also gave to others who held sway over Rezmar's housing deals -- like Chicago aldermen.
Meanwhile, Rezmar's low-income apartments were deteriorating, and it stopped repaying some loans.
So why did the city keep lending Rezko's company more tax dollars? "During the time he did work with us -- and that was many years ago -- there was nothing to indicate there was a problem," Daley spokeswoman Jacquelyn Heard said.
In fact, there was. City attorneys repeatedly went to court to force Rezmar to make repairs to its buildings and, in some cases, to get the heat turned on.
State loans helped
In 1991, Jim Edgar had just been elected governor, and Rezko had been "very helpful' in raising money for Edgar, according to Robert Kjellander, a top Illinois Republican Party official and one of Edgar's top fund-raisers.
Rezko and Mahru hired Kjellander, an influential lobbyist, to help get state money for housing projects.
"It just lasted a couple years," Kjellander said.
Eight months after Edgar took office, the Illinois Housing Development Authority gave Rezmar a $500,000 loan to help rehab a 65-unit building for senior citizens in South Shore. A year later, Rezmar came back to the state and got a $60,000 loan, citing cost overruns.
Eight years later, Rezmar abandoned the building, leaving it to its partner in the deal, the Chicago Equity Fund, whose corporate investors had purchased tax credits from Rezmar to help pay for the rehab. The building was left in disrepair, and the Equity Fund investors were facing IRS penalties if the project didn't survive for 15 years. So the fund got a separate loan from the state, for $381,839, to try to rescue the building.
Today, all three mortgages are delinquent. The state is foreclosing on the building in hopes of finding someone who can run it and the senior citizens can continue living there.
Rezmar got paid first
If one of these low-income housing deals failed, lenders and investors would lose money -- but not Rezmar or its owners.
Rezko and Mahru weren't responsible for any government or bank loans. And they would never have to repay the $50 million in federal tax credits they got to rehab the buildings.
But they were guaranteed to make money. Rezmar put just $100 into each project and got a 1 percent stake as the general partner in charge of everything. Rezmar got to hire the architect and contractor, as well as the company that would manage the buildings, screen tenants and make repairs. The management company Rezmar hired? Chicago Property Management, also owned by Rezko and Mahru.
Rezmar made its money on upfront development fees. And Rezmar got paid first -- $6.9 million in all from its deals.
The development fees ultimately came from taxpayers. Here's how that worked: The federal government gives the city and state a set amount of tax credits to hand out for low-income projects. Developers, like Rezmar, are awarded those credits, then sell them to corporate investors at a fraction of their value. The investors profit through those tax breaks.
Rezmar got part of its development fees when its deals closed. It got the last of those fees when tenants moved in.
Under its deals with the Chicago Equity Fund, Rezmar promised to cover all operating losses in any building for seven years. But after that, Rezmar began walking away from the buildings, often leaving them with many vacant apartments and other problems.
"They had every incentive to walk away from the deals,' said Ald. Toni Preckwinkle (4th), who had six Rezmar buildings in her ward.
One former government official knowledgeable about the deals said: "It's too coincidental that, once the developer fees are in their pockets, the things start going down. ... We never had one guy with that many deals go belly up.
"Were we all to blame for not going after Rezmar when they started going bad? Yeah. There were huge drug problems in a lot of their buildings. Their tenant screening left a lot to be desired.'
'Financial difficulties'
That's what city officials called it when Rezmar stopped making the $2,982.79 monthly payment on its first city loan after just three years. Rezmar got the $629,000 loan to fix up a 44-unit abandoned building at 4611-4617 S. Drexel. But rental income never met expectations. Tenants came and went, leading to high vacancy rates and maintenance costs. Property taxes were higher than expected. And Rezmar hadn't planned for one expense that turned out to be necessary: security guards to keep drug dealers away.
Rezmar's deals "were doomed to fail,' said David Brint, Rezmar's former executive vice president. "You had unrealistic expectations on expenses and income.'
Rezmar missed 16 payments on its first city mortgage, and the city changed the terms: Rezmar would have to pay just $465 a month, instead of $2,982.79.
Meanwhile, the city and state each gave Rezmar more money for two more buildings -- one in Logan Square, another in Uptown. Both later went into foreclosure.
City official's concern ignored
Rezmar's financial problems became a concern to city officials in the summer of 1998 -- six years after it first missed payments on city loans. Rezko and Mahru were seeking a $3.1 million loan in 1998 for what would be their final low-income housing project.
Rezmar's loan application apparently made no reference to financial problems, including a bank's threat to foreclose on Rezmar's first deal, the building at 46th and Drexel. This worried Jack Markowski, then the city's first deputy housing commissioner, now commissioner.
"For Rezmar, I'd want to see their 1997 computation since rumors are that they're in bad shape,' Markowski wrote in a July 8, 1998, memo to his staff.
Despite Markowski's concerns, the Daley administration gave Rezmar a $3.1 million loan to help rehab 84 apartments.
Asked about his 1998 memo, Markowski issued a statement last week saying the city gave Rezmar the loan because "credit references were positive and loans current.' And Markowski noted that others -- First National Bank of Chicago and Apollo Housing Capital -- invested in that project.
That deal included three of the mayor's top African-American allies: Bishop Arthur Brazier, Leon Finney Jr. and Allison Davis. Brazier and Finney ran the Fund for Community Redevelopment and Revitalization, a not-for-profit group that was Rezmar's partner in the project.
Davis' company is listed in state records as an investor in the deal, though the state said he didn't end up investing in the deal. Davis said he had no recollection of investing in the deal. But one of his companies formed a partnership with Apollo and got a $130,000 fee on that deal, state records show.
Davis and Finney are also members of the Chicago Plan Commission, appointed by Daley.
No keys, no heat
Two years later, Rezko and Mahru began abandoning their buildings, dumping them to its limited partner, the Chicago Equity Fund.
"I told Dan [Mahru] that he ought to stay in, that he owed it to us and the properties,' said William Higginson, who founded and was president of the Chicago Equity Fund. "I understand the [seven-year] guarantee is gone, but that doesn't mean the responsibility was gone. They said they couldn't do it.'
Rezmar's buildings were in bad shape, according to a May 14, 2001, letter Higginson wrote to state housing officials asking them to suspend the mortgage payments for six months.
"We were faced with innumerable problems,' Higginson wrote. "No keys for dozens of units; no heat in over half of the buildings; Insufficient record-keeping to enable us to identify actual tenants as well as delinquent tenants; high percentage of tenants rent that were 3-4 months behind; back payables that exceed $350,000; and capital improvements, legal costs for evictions and unit turnovers that will cost between $300,000-$400,000 over the next 12 months.'
As Rezko and Mahru left many black neighborhoods with deteriorating apartment buildings, they moved on to something new -- building upscale condos and townhomes in booming Chicago neighborhoods, including the South Loop.
'A problem . . . for years'
Mahru blamed Rezmar's problems on their low-income tenants -- tenants he and Rezko were responsible for screening.
"We lost huge amounts of money operating those buildings," Mahru said. "There's no money in affordable housing. The tenants don't pay their rent. You can't evict them. And when you finally evict them, they owe more than a year's rent, and the apartment is a mess. There's no money to clean it up or fix it up. That happened over and over again.'
Janet Jenkins witnessed the deterioration of one building that Rezmar co-developed with the Chicago Urban League a dozen years ago. Today, the 12-unit building at 62nd Street and Rhodes is boarded up. And she's glad.
"Oh, absolutely,' said Jenkins, 57, who lives a few doors south of the building. "That building has been a problem to this block for years.
"We had numerous complaints. Drug selling. Prostitution. The whole nine yards. Filthy. Deplorable. Rats. Mice. Roaches. Urine. Feces. Name it.'
'A big disappointment'
Preckwinkle, the South Side alderman, has a long friendship with Rezko. She got more than $30,000 in campaign contributions from Rezko, his family and business associates over the years. And Rezko served on her campaign finance committee for years.
Still, she criticizes Rezko and Mahru for leaving their six buildings in her ward "marginally occupied, full of drug dealers and thugs. They had a whole bunch of deferred maintenance. And they stripped the buildings of all of their reserves.
"That Rezmar would do this was a big disappointment to me.'
ABOUT THIS SERIES
Staff reporter Tim Novak examines previously unreported government-funded, low-income housing deals involving Antoin "Tony" Rezko, the indicted political fund-raiser.
TODAY | Rezmar kept getting city and state funding, even as earlier projects fell into disrepair and financial troubles.
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