South Side Multifamily Players Lee, DeRoo in Web of Distress

South Side multifamily investors Tyler DeRoo and Stephen Lee are tangled in litigation with investors and lenders who allege the pair has mismanaged funds tied to Chicago real estate and defaulted on a portfolio of loans, public records show.

Investor-owned entities also claimed DeRoo is a “disgraced Ponzi schemer” who has fallen behind on paying a settlement he owed that was tied to a previous alleged $135 million Chicago real estate scam investigated by the SEC, according to court documents.

The allegations against DeRoo and Lee paint a picture of businessmen who in recent months have purposefully and successfully dodged being served court papers dozens of times by sheriff’s deputies and others hired by attorneys for investors trying to track the men down, all while rising interest rates have dented commercial real estate prices and squeezed multifamily investors at many levels of the market.

Not only is DeRoo facing angry investors and foreclosure lawsuits, but he’s also been hit with a complaint in Illinois federal court from a receiver in charge of collecting settlements related to the SEC’s agreement with EquityBuild Finance, a firm accused in 2018 of running a deceptive real estate business that racked up a nine-figure fraud involving hundreds of duped investors.

The receiver claims DeRoo agreed to pay $325,000 related to the EquityBuild settlement, but has defaulted on the last $125,000 installment still owed.

That allegation was made in February by the receiver, Kevin B. Duff, as another group of investors, as well as lenders for DeRoo and Lee, close in on a South Side multifamily portfolio the pair acquired for $32 million in 2020.

A spokesperson for DeRoo said he is committed to making the final settlement payment and refuted that he and Lee have intentionally evaded being served lawsuits, despite a lawyer for West Palm Beach, Florida-based investor Andrew OShay claiming he’s tried to have DeRoo served more than 50 times at multiple locations he’s associated with in recent months without success.

“Tyler and Steve are businessmen with integrity,” the spokesperson, Lissa Druss, said. “They are real estate developers and investors, just like every other developer and investor who has experienced the same highs and lows of circumstances in the real estate business. [They] are committed to their investors, lenders, and, most importantly, the residents in their buildings, to ensure they are doing the best they can for them — at all times.”

They bought the portfolio in question in partnership with OShay, who has sued DeRoo and Lee in Delaware and in Cook County, alleging they took advantage of property management agreements and wrongfully transferred “hundreds of thousands” of dollars in revenues into companies controlled solely by DeRoo and Lee and away from jointly held assets with OShay.

OShay, through his company Alpine Hill Capital, claimed he was left in the dark about issues facing Chicago properties, which included “low occupancy numbers, capital needs and maintenance challenges,” according to court filings. The lawsuit accuses his co-owners and property managers DeRoo and Lee of causing financial distress and disrepair for the properties.

In a response, DeRoo and Lee claimed it was Alpine Hill that “stopped fulfilling its responsibilities” to raise capital to maintain the properties, saying Catalyst Realty had to front “thousands and thousands of dollars in operational costs” without Alpine Hill’s support.

“The endgame is to get control of the properties,” OShay said. “The bigger story is not what’s going to happen to me, it’s how [DeRoo] is utilizing the properties to create horrific living conditions for the residents living down there. He gets investors to give him money, uses it for other things and doesn’t fix the repairs he promised.”

In January 2023, Block Club Chicago reported that at least a dozen tenants went without heat for over a month at South Paxton Avenue buildings controlled by Catalyst Realty LLC, a property management company owned by DeRoo.

Catalyst Realty has also filed dozens of eviction lawsuits against residents of various properties over the last two years, court records show.

While OShay’s Delaware lawsuit was settled, it allowed his investment platform Alpine Hill Capital to boot DeRoo and Lee’s property management companies DeLee Development and Catalyst Realty from operating key assets in the portfolio, such as the apartments at 6715 and 6755 South Paxton Avenue near Jackson Park.

DeRoo’s company Catalyst responded by filing hundreds of thousands of dollars worth of mechanic’s liens, claiming it had gone unpaid by the landlord for work on the properties.

The Paxton properties were part of a portfolio of six assets that DeRoo, Lee and OShay purchased near Jackson Park in 2021 for $13 million, but three of them have since been sold to entities controlled by investor Chikoo Patel for around $9 million total, public records show.

Patel’s platform CKO Investments is allowing OShay to keep some equity in the properties, but his share of the assets has been diluted in part due to the disputes with Lee and DeRoo, according to people familiar with the properties and public records.

Additionally, DeRoo — whose office is in Chicago and who resides at a suburban Bannockburn home purchased in 2021 for $2.6 million, court records show — and California-based Lee and their affiliates have been named in five foreclosure lawsuits on South Side properties over the last year.

Altogether, the cases, which are ongoing in Cook County Circuit Court, allege that they and other co-defendants owe more than $10 million in defaulted loan payments to lenders, including a Colliers affiliate and Lima One Capital, for properties including 7350 and 7358 South Phillips Avenue and 320 East 60th Street.

Adding to the list of lawsuits, DeRoo is being sued in New York Supreme Court by Apollo Funding Company, which claims that he and Catalyst Realty owe the company more than $200,000.