Inside the turmoil at Chicago’s largest-ever condo buyout
Since failing to close on Ontario Place last month, Yitzy Klor’s Strategic Properties and his lender are scrambling to save deal with frustrated sellers
Yitzy Klor is either about to overcome a full-blown Swiss banking crisis to close the priciest condo buyout in Chicago history, or he’s about to face a barrage of legal trouble.
After requesting multiple extensions and failing to close on Ontario Place last month, Klor’s firm, Strategic Properties of North America, has been scrambling to complete its $190 million purchase of the 467-unit tower at 10 East Ontario Street in a bulk deal with the condo owners.
The saga has lasted three years and endured many false starts, and descriptions such as “unprofessional” are being lobbed against Strategic in meetings of the condo association board, whose leaders openly talk about claims for damages against the buyer in front of unit owners now weary of the lengthy, complex sale.
“I am at my breaking point with this,” Ontario Place board member Sam Lane said in Thursday’s meeting, according to audio obtained by The Real Deal. “It is one excuse after the other. However, trying to take my emotion out of it and put my logic hat on, we couldn’t have foreseen what was happening at Silicon Valley Bank, what was happening in Switzerland.”
Condo deconversions — the term for bulk purchases of individually owned condos by a single buyer to repurpose the asset — often get messy. This one stands out.
Klor’s firm, which has become a specialist in the transaction type, and the condo board already fended off multiple lawsuits from unit owners who didn’t want to enter the deal in the first place. Even with those complaints out of the way, drama has erupted within the building since Strategic balked on closing in the middle of February, when unit owners were instructed to leave their keys on their counters only to be told hours later the buyer didn’t have the funds yet to close.
In the following weeks, multiple banks were brought to their knees.
Sellers and their attorneys elected to stop communicating with the buyer, but instead directly with its lender, an alternative lender called Fairchild. The collapse of Credit Suisse and the attention it drew from Swiss regulators figured into further delaying the closing this month, according to a letter from Fairchild principals Mark Kelley and Karen Kahn that was shared with TRD.
Still, the letter offered the sellers some more assurance the deal would be funded.
“At this point, it is not a matter of whether this funding will occur, it is only a matter of when,” Kelley’s and Kahn’s letter said. It added that the timing of the release of funds should be considered in light of the “current international banking environment,” and goes on to mention the Swiss banking regulator.
Fairchild said it would be able to determine an exact closing date by later this week, so the condo board agreed to meet again March 30 to decide whether the deal should move forward. Strategic put up another $500,000 the last time the closing failed in order to extend the deal, bringing the total it has at stake in non-refundable cash up to about $1.7 million, according to TRD’s interviews with sellers.
“If it’s something reasonable and short, then probably, based on information we’ve received or at least saw from some unofficial surveys, the majority of owners still want to close,” board president Ellen Gutiontov said, referencing an online poll sent out in a building-wide email that could become a liability for its property manager. “If it’s something unreasonable, then it’s a whole different conversation.”
Meanwhile, some sellers say they were pushed into tough decisions because of the delays. One said she had to sell stocks in order to close a contingent purchase of another home she had hoped to fund with proceeds from her Ontario Place sale. Others stopped leasing their apartments to tenants they would have kept a while longer had they known the deal wouldn’t close.
“We’re all frustrated,” Gutiontov said.
Thursday is shaping up to be big for Strategic on multiple fronts.
While the condo board will decide whether to proceed with the deal, Klor and his Strategic colleague, Saul Kupperwasser, have a court date in the morning. It’s for a motions hearing in a lawsuit from an investor who alleged he was wrongly diluted out of hundreds of thousands of dollars in proceeds from a $65 million multifamily sale in Chicago’s northwest suburbs.
It’s one of at least two lawsuits Strategic is facing that allege it has reneged on payments. A Strategic executive didn’t return a request for comment for this story. Fairchild declined to comment.
And more arbitration or litigation could be forthcoming.
“Put everything in the kitchen sink and let them deal with it,” Gutiontov said to a unit owner who asked what types of claims for damages others in the building are considering pursuing against Strategic.
The deal’s holdup has also impacted the building’s property manager, Sudler Property Management. A misstep by Sudler opened up a new — and unwelcome for Strategic — channel of communication for unit owners.
A building-wide email from Sudler showed its recipients the email addresses of every other unit owner who received the message, according to a follow-up message the property manager sent last week viewed by TRD. Owners not on the condo board aren’t typically allowed to access the email addresses of other unit owners, according to a city law.
The email chain, however, allowed unit owners to run an informal survey on the deal that elicited more than 180 responses. Sudler didn’t return a request for comment. The survey showed 59 percent of respondents want to pursue legal action for damages against Strategic.
It also showed most respondents want to proceed with extending the deal and giving Strategic one last chance to close. For some unit owners, though, more haggling may not change their preference to abandon the deal.
“At least I am tired of the board taking decisions for me and extending,” owner Ana Mendez said in last week’s board meeting. “And I’m sure many of the owners are.”