Senior housing landlord 3 Diamond Development is on the verge of losing a suburban Chicago affordable housing complex to its lender.
The Lincolnwood-based developer and landlord — which claims to operate a sizable portfolio of Illinois and Iowa multifamily properties mostly reserved for residents 62 and older — is facing a $21.1 million foreclosure lawsuit from Green Bay, Wisconsin-based lender Associated Bank.
The mortgage allegedly in default is tied to the 108-unit Carroll Tower at 200 North Second Street in west suburban St. Charles, on the banks of the Fox River. The amount owed equates to $195,000 per unit.
Associated claims the affiliate of 3 Diamond that owns the property and borrowed $20 million against it in 2022 defaulted on the debt by failing to pay principal and interest prior to its maturity last year.
The loan from Associated funded 3 Diamond’s $23.5 million purchase of the property from Chicago-based developer Carroll Properties, which owned the six-story building for decades.
While the property was fully occupied with a waiting list of 104 potential residents at the time of the sale, some affordable housing deals have taken hits as interest rate hikes have eroded property values. Furthermore, court documents in Associated’s foreclosure lawsuit show that Carroll Tower has received substantial income from the Department of Housing and Urban Development’s Housing Choice Voucher program, formerly known as Section 8.
Carroll Tower is far from the only Chicago-area affordable housing asset to fall into distress in recent months. Infinity Real Estate Advisors, an Atlanta-based landlord of a portfolio of rentals on the far West Side of Chicago, is suing its prominent property manager RPM Living for $19 million alleging RPM caused “catastrophic losses” by failing to certify tenants for housing assistance, among other missteps.
Other Chicago-area landlords that often worked with Section 8 tenants have been blacklisted by Fannie Mae for running their properties into the ground and duping lenders into providing bigger debts than their properties should have secured.
It’s unclear what led to trouble for the 3 Diamond deal in St. Charles. Representatives of 3 Diamond didn’t return requests for comment, and neither did an attorney for Associated.
But it appears that the landlord has had attorneys file appearances in Kane County court and intends to respond to Associated’s complaint, public records show. So far, they haven’t raised any defenses against the foreclosure but could file court papers in the coming months.
In the meantime, the court appointed a receiver to take over the operations of the Carroll Tower property until the court case plays out. Associated requested Oak Brook-based Daniel J. McKay as the property’s receiver, which Kane County Judge Divya Sarang obliged. McKay didn’t return a request for comment.
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