Lerner family fight: Father’s actions led to bankruptcy, son says

Filing seeks to avoid foreclosure on Wicker Park apartments

1741 North Western Avenue (Google Maps, Getty)

Rachel Herzog

Sep 22, 2023, 7:15 AM

Chicago’s Lerner family fight is rippling deeper into local real estate development deals.

Michael Nathan Lerner is seeking bankruptcy protection from a foreclosure on a Wicker Park apartment building he owns, the latest event in a series of legal disputes among members of his prominent Chicago real estate family.

In a Chapter 11 filing earlier this month, Lerner said that although the 25-unit property he owns at 1741 North Western Avenue is cash-flow positive, he had to seek bankruptcy protection due to the actions of his father, longtime multifamily developer Michael J. Lerner.

The elder Lerner is the founder of Chicago-based MCZ Development, which has a portfolio of apartment complexes in Chicago, Kansas City, Washington, D.C. and elsewhere.

The younger Lerner states in the filing that he and his father have worked in real estate for more than a decade and had agreed to evenly share the proceeds and costs of certain investments that the son owned, including the North Western Avenue building.

The filing alleges that Lerner’s father stopped paying his share of expenses for the properties, which has added up to more than $2 million, including $600,000 related to the North Western Avenue property.

Lerner states that the asset’s lender, Heartland Bank and Trust Company, refused to refinance a $5 million loan secured by the property despite having done so before, which he suspects is due to the creditor’s “close business relationship” with his father.

After the maturity default, the lender turned over the rights and interest in the mortgage to AEB Services, an entity controlled by a close friend and longtime business partner of the elder Lerner, according to the suit.

In the suit, Lerner added that the “ongoing blitz of litigation” from his father, a trust controlled by his parents and AEB have made it challenging to facilitate refinancing the property to satisfy his obligations to the lender.

An attorney representing Michael J. Lerner and AEB did not respond to a request for comment. Heartland did not respond to a request for comment. MCZ Development did not return a request for comment.

Over the summer, a lawsuit brought by a trust controlled by Lerner’s mother, Jamie Lerner, claimed that the son closed real estate deals without getting her permission when he was legally required to and that Jamie Lerner was entitled to receive half the proceeds from but never did.

Months earlier, Lerner privately settled separate litigation brought by his father that sought to usurp the son’s equity in a $35 million Fulton Market development site sale to Miami-based developer Crescent Heights, which plans a 52-story, 587-unit apartment tower on the property at 420 North May Street.

A hearing in the son’s bankruptcy case is scheduled for 9 a.m. Wednesday next week, court records show.

Chicago