Chicago affordable housing firm at odds with investor in new lawsuit

Multifamily player Jeffrey Rappin is butting heads with his financial partner over a plan to cash out of a suburban Chicago apartment complex for $26 million.

Evergreen Real Estate Group, a Chicago-based firm founded by Rappin that specializes in building and managing both market-rate and affordable housing, is at odds with Boston-based real estate investment firm Roseview over a disputed buy-out process.

Rappin’s firm alleges that Roseview is purposely stalling plans to sell off its share of an affordable housing project at 150 Greenhaven Lane in north suburban Gurnee, an asset run by Evergreen, in hopes of scoring a higher appraisal, a Cook County lawsuit filed Dec. 5 states.

The lawsuit describes the Gurnee property as an affordable rental complex supported by Section 8 housing vouchers — a specialty of Evergreen’s, which owns and manages apartments throughout the U.S. totalling 13,000 affordable and market-rate units. The dispute provides a look inside the often complicated finances and investing strategy employed by affordable housing players.

Representatives for Roseview did not respond to requests for comment and the firm has not yet filed a response to the lawsuit. Representatives of Evergreen declined to comment. (Roseview merged with Washington, D.C.-based Madison Marquette in 2019.)

Roseview had agreed to sell off its ownership of the 181-unit Gurnee apartment complex five to seven years after buying into it with Evergreen. Roseview invested $5.8 million into the property, alongside Evergreen, the lawsuit said. Evergreen maintained an option to buy out Roseview’s interest in the property at the five to seven year mark.

An operating agreement stated that upon Evergreen triggering the buyout process, Roseview could request an independent appraisal of the property from a list of three appraisers recommended by Evergreen, the lawsuit said.

After receiving an appraisal that would have valued the property at $23 million and given Roseview nearly $2 million for its share in November 2023, a letter from Roseview to the appraiser stated the investor was “shocked and dismayed to be polite at what you believe is a market cap rate today in this appraisal and how you arrived at some of your valuations.”

The same appraiser came back with a $25.5 million appraisal after addressing Roseview’s concerns, but the company would not accept that value either, the lawsuit alleges. Instead, Roseview proposed to Evergreen that the property was worth $32.5 million.

If Roseview accepted a buyout based on the $23 million appraisal it would have earned $1.9M for its share in the property, the lawsuit stated, in addition to the income the property had generated for the investor since 2017. Counting the income, Roseview’s return would have totaled $9.5 million, for a net gain of nearly $3.7 million on its initial investment of $5.8 million, Evergreen claims.

The property was valued at nearly $23 million back in 2008, when the Lake County Residential Development Corporation sold off stakes in the asset to a group of investors, public records show. Evergreen and Roseview entered the picture in 2017, when they bought into the asset, including by assuming responsibility for $7.7 million in junior loans, public records show. They also took on part of the responsibility for the $21.5 million Freddie Mac loan issued against the property in 2019, although due to the affordable housing covenants tied to the property there are likely tax credit investors and quasi-governmental entities on the hook for some of that portion of the debt stack.

If Evergreen agreed to Roseview’s proposal to be bought out at a nearly $33 million valuation for the property, Roseview would have earned $8 million for its share at the time of sale, which would more than double its total return on investment compared to the figure Evergreen is pushing for the buyout.

But Evergreen’s complaint states that Roseview’s valuation is invalid because it wasn’t generated by a process that the parties agreed on and that the company was “demanding that the parties throw away the entire process they agreed to and set the buyout based on a much higher alleged value for the property.”

Evergreen also noted that the property has already generated a better return for Roseview than either party expected when they acquired their stakes in the building in 2017.

Evergreen is requesting a judge enforce the sale of Roseview’s stake in the property based on the $25.5 million valuation.