Record $190M condo deconversion on shaky ground

Sellers say Yitzy Klor’s Strategic Properties delays closing at 10 East Ontario

From left: Strategic Properties’ Dov Grinblatt, former Sacramento fire chief Julius Cherry and 10 East Ontario Street, Chicago (Google Maps, Getty Images, LinkedIn/dovgrinblatt, Twitter/cherry4council)
From left: Strategic Properties’ Dov Grinblatt, former Sacramento fire chief Julius Cherry and 10 East Ontario Street, Chicago (Google Maps, Getty Images, LinkedIn/dovgrinblatt, Twitter/cherry4council)

Yitzy Klor’s Strategic Properties of North America has hit a snag in closing what would be a record $190 million condo deconversion, a complication that arose a week after the Federal Reserve delivered its clearest signal yet that it would keep hiking rates.

While the $190 million deal — the priciest of its kind in Chicago history — could still make it to the finish line, it’s on shaky ground, according to Howard Dakoff, an attorney for the condo board of the 51-story, 467-unit building at 10 East Ontario Street in River North. Dakoff said in an email on Tuesday that Strategic Properties, whose CEO is Klor, has delayed the closing.

“Unfortunately, the buyer has recently informed us that due to economic pressures, a portion of their funding has been impacted,” Dakoff said. “The board is currently working with the buyer to determine how this impacts the sale and negotiating acceptable terms for this delay.”

Strategic Properties leadership didn’t return requests for comment.

While Dakoff didn’t cite rising borrowing costs, rates were far more favorable last fall, when the critical threshold of condo unit owners cumulatively holding at least 85 percent of the property’s value voted to accept the offer after rejecting previous, less pricey proposals.

Given today’s higher rates, “I’d be shocked if they close it at that number,” said Michael Dobrov, a real estate investor who has assembled a portfolio of thousands of apartments in the Chicago area through condo deconversions. He isn’t involved in the Ontario Street proposal.

Such deals are sanctioned by a process laid out in state law that lets a buyer transform condo properties in which units are owned by individuals into rentals under one owner, as long as offers garner a supermajority of votes. They are somewhat unique to the Chicago area, due in part to the sluggish recovery of its condo market from the Great Recession and the strong performance of apartments. They are also often controversial, as they have the potential to strip ownership from unwilling sellers who get outvoted.

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Strategic Properties’ deal has been faced with litigation: a California federal judge has yet to decide on a motion to dismiss a complaint against the condo board brought by unit owners Gerald Glazer and Julius Cherry, who want to keep their condos and stop the deal from moving forward, Dakoff said. Earlier lawsuits they filed in Illinois courts were dismissed and Dakoff has said the California case lacks merit as well. It’s unclear whether the litigation played a role in stretching out the closing into a tighter economic environment for borrowers than when Strategic made its offer a year ago. The condo board had anticipated an early July closing.

Cherry and Peter F. Samuel, a California lawyer representing Glazer and Cherry, who is the former fire chief of Sacramento, didn’t return requests for comment.

Dakoff said Strategic Properties says it will work through the problem and noted its efficiency in completing condo deconversions in Chicago. The firm set a previous record for the city’s priciest deconversion when it bought 1400 Lake Shore Drive and turned it into apartments in 2019 for $107 million.

“SPNA is adamant that that funding issue has nothing to do with the lawsuits and they are very confident this funding issue will be resolved,” Dakoff said. “They have closed on 100 percent of the deconversion deals they have done.”

Nonetheless, the uncertainty has irked Ontario Place residents. A new closing date hasn’t been set.

“Myself and many owners are frustrated not knowing what’s going on,” said one resident, Bill Martinez. “It’s a hell of a way to live.”

Klor’s firm is also in the midst of closing a $96 million condo deconversion for a 310-unit Loop building at 200 North Dearborn Street that was accepted by the 85 percent threshold of unit owner voters this summer.

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