Developer Michael N. Lerner’s control of a Chicago multifamily portfolio has been paused, as a lawsuit against him by his mother, Jamie Lerner, winds through court.
A judge appointed a receiver to the portfolio of dozens of properties, despite objections from Lerner, who is referred to as Nathan in the suit. He was previously named as an executive at his father Michael J. Lerner’s Chicago-based development firm MCZ Development, which has built large apartment complexes locally, in Missouri, Washington, D.C., and elsewhere.
This isn’t the first time one of Lerner’s parents have sued him. His father sued him last year in an attempt to usurp the son’s stake in a $35 million Fulton Market development site deal.
That sale was from a joint venture including the son and @Properties co-CEOs Thad Wong and Michael Golden, to Miami-based skyscraper builder Crescent Heights. That complaint was resolved through a private settlement, but was the first among several legal actions and finger-pointing in which the family members have been entangled.
In her lawsuit, Jamie Lerner raised new issues with her son’s handling of the Fulton Market deal.
The mother alleges her son has “very likely” improperly siphoned “well over” $10 million of distributions from dozens of Lerner Companies properties without sharing any portion with a family trust in the mother’s name, as he was obligated by business agreements.
The funds at issue include at least $5.7 million worth of distributions from the ownership entities for properties, including 919 North Larrabee Street and 1338 West Cullerton Street, between 2017 and 2021, the lawsuit says. It also says the younger Lerner used Lerner Companies funds to buy properties without authorization, including a $3.9 million condo in the Hayden West Loop, at 1109 West Washington Street. It claims he authorized the sale or refinancing of multiple properties without the required permission of the family trust and failed to share proceeds from the deals with the trust.
The suit also accuses the younger Lerner of failing to repay more than $571,000 in loans issued from 2019 to 2021 from his father; failing to repay $450,000 in loans from a trust in the mother’s name; and defaulting on credit facilities from banks tied to real estate, including more than $5 million in debt tied to 1741 North Western Avenue.
“The monetary defaults would not have occurred but for Nathan’s misconduct and mismanagement,” the mother’s latest complaint, filed in November in Cook County court, said. “Nathan has and continues to systematically and fundamentally exploit his personal relationship with the trustee to convert company funds and breach his fiduciary obligations.”
Neither Michael N. Lerner, nor Jamie Lerner returned requests for comment, and their attorneys didn’t return requests seeking comment.
The son, however, fought through court motions against the appointment of a receiver to four properties, which includes 99 apartment units throughout Chicago neighborhoods, including Uptown, Wicker Park, Bucktown and Pilsen. They are at 5137 North Broadway; 1338 West Cullerton Street; 1646 North Bosworth Avenue and 1752 West 18th Place.
The son said in court filings in March that he “never borrowed money from the trust,” explaining that funds provided to him from his father were owed to him for the elder’s “failure to live up to his obligations to meet capital calls for [Nathan’s] business ventures,” in which the father had a 50 percent interest. The son alleged his father owned business entities, including daycare Sonnets Academy and piano bar Howl at the Moon, that leased space at 1636 North Bosworth, but that they failed to pay rent for years, leaving the son to pay for the property’s costly renovation on his own.
The younger Lerner also claimed that he never signed a 2013 agreement his mother’s trust has been using to cite his obligations to share the disputed funds with the trust, and the son has called it “a forgery.”
Cook County Judge Pam Meyerson was unconvinced by the son’s pleas to delay cutting off his control of the properties. She appointed Matthew Brash of Newpoint Advisors Corporation as a receiver, who last month said he has taken steps to obtain a broker’s opinion of value for the four properties, to explore selling the buildings and using the proceeds to settle the disputes.
As the lawsuit advanced, loans tied to the properties transferred to special servicers, which usually means lenders foresee a growing chance of a borrower’s default on a debt, court records show.
“Michael N. Lerner has placed the defendant receiver companies in danger of loss from neglect, waste, misconduct, and/or insolvency based on his use of [their] funds for personal expenses, commingling of [their] funds with his personal bank accounts and decisions to encumber [them] with liens to secure personal loans,” according to a March 25 court order.
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