Some of Raphael Lowenstein’s South Side real estate plays are on the brink of distress.
The landlord behind Chicago-based 312 Property Management — which has become a target of city code inspectors and tenant activists in various court cases — has fallen behind paying the principal and interest on three loans tied to multifamily buildings in the Bronzeville and Kenwood neighborhoods, according to loan servicer data compiled by Morningstar Credit.
The largest, a $31 million debt for the 116-unit Drexel Terraces, at 4830 South Drexel Boulevard, was taken out only six months before Lowenstein fell into delinquency with the payments in August. The loan is still marked as between 30 and 59 days delinquent for September and October dues.
The other two late loans are for $15.4 million tied to the 68-unit building at 4520 South Drexel and $7.5 million secured by the 48-unit building at 4612-4626 South Lake Park Avenue. All three loans are for buildings that are at least a century old, and all were originated by Morgan Stanley and sold off to investors in commercial mortgage-backed securities, making details of the properties’ performances public.
Lowenstein claims he’s on track to solve the problems and get back to current on his firm’s commitments. The Drexel Terraces loan doesn’t mature until 2029, while the other two mature in 2032 and 2028, respectively.
He fell behind after running into serious issues with city code violations at his properties that forced their occupancy to drop while he made repairs. With the repairs nearing completion, however, the properties are set to reach 95 percent leased, Lowenstein said in an interview.
His predicament is a microcosm of the odds Chicago real estate players are up against when placing bets on aging South Side buildings, where deals can get unraveled by unforeseen problems with old mechanical systems, deferred maintenance under previous landlords, crime and rising taxes.
Lowenstein’s lenders are far from the only investors to be left hanging when a property’s cash flow has to fund repairs instead of debt service. Some instances have been even more extreme, such as when Freddie Mac moved to foreclose on a Kenwood apartment complex riddled with code violations, citing the disrepair as a loan default — the building was owned by an entity involved with since-convicted investor and mortgage fraudster Aron Puretz.
“We’re in an excellent spot for future operations,” Lowenstein said. “We immediately handled and cured the violations. We’re in full communication with the lenders and have a plan with them.”
Wells Fargo, the master servicer for all three loans, didn’t return a request for comment Monday.
The issues with 312 Property Management’s South Side portfolio — which consists of other buildings, as well — were apparent two years ago, when news reports surfaced of tenants going through “hell” at properties owned by the landlord.
The city of Chicago also got involved, taking 312 to court to demand the firm remedy 41 code violations at 6610-18 South Kenwood Avenue or face the appointment of a receiver that would take control of the property. Tenants have also sued the landlord over problems they claim they’ve had with their apartments. In the meantime, the landlord also frequently uses the courts itself for eviction cases, including several times recently at 4520 South Drexel.
Lowenstein’s lender noted a July inspection turned up problems at 4520 South Drexel, a 104-year-old building where there was “significant evidence of microbial growth” in a common hallway and a unit’s bathroom ceiling, and exposed wiring outside of another unit, among other deferred maintenance issues, loan servicer data shows.
However, the landlord as of the middle of last month told the lender it was in the process of collecting back rents owed by tenants or former tenants of the building. The landlord sent its September debt payment late, but still hadn’t posted an October payment several weeks ago, loan data shows.
At the Drexel Terraces property, Lowenstein’s firm told its lender it was set to bring the loan current in September, but it’s still marked as delinquent for September and October payments.
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