Chicago landlords Chikoo Patel and Shai Wolkowicki are adding 518 apartments to their South Side holdings, through a plan to buy four distressed portfolios in partnership with a Milwaukee-based firm, they said.
Patel and Wolkowicki’s CKO Investments is teaming up with Scott Lurie’s F Street Investments to spend $35 million on 19 buildings in Hyde Park and South Shore, properties plagued with various financial conundrums, including foreclosures and allegations of mismanagement.
In a presentation to potential investors on Thursday, the firms said they’ve locked in deals with lenders on three of the four portfolios to assume their existing debt packages with interest rates between 3.99 and 4.6 percent, sparing the buyers from today’s higher interest rates.
The deal will come to about $68,000 per unit on average across all of the portfolios, and projected they can bring the portfolio’s value up to a little more than $108,000 per unit with new management and renovations, which are expected to cost $27,000 per unit.
“We’re seeing more bank-owned real estate and more distressed real estate. We see great opportunities in the market and these are certainly some of those,” Lurie said during the presentation.
F Street and CKO are aiming to raise $14 million by syndicating a portion of equity in the portfolios from outside investors. The buyers said they’re taking on about $33 million in debt to fund the deals.
That money will help the duo pay for repairs and renovations, while also allowing them to stay liquid enough to go after new deals over the next two years. They’re expecting more real estate to fall into distress, given higher lending costs.
Patel has already been involved with the largest of the portfolios, known as the nine-building, 237-unit Jackson Highlands properties, which had previously been owned by a venture involving Tyler DeRoo, an investor with a checkered past who’s on either side of several lawsuits tied to South Side real estate.
Patel has worked to take over the ownership position of DeRoo, who defaulted on an almost $13 million mortgage tied to several of the properties in the portfolio and subsequently lost buildings to foreclosure, according to public records and Patel.
The portfolio includes 352-62 East 60th Street, 6750 South Merrill Avenue as well as buildings on South Paxton, South Clyde and South Oglesby Avenues. DeRoo’s property management company Catalyst has filed mechanics liens on the buildings for allegedly going unpaid by his partner in the properties — West Palm Beach, Florida-based investor Andrew OShay — as part of a larger dispute between those two men.
“A lot of distress on this is through mismanagement of the existing assets, and so we’re putting a good amount of equity in, about $3.7 million, on the [Jackson Highlands] portfolio,” Patel said.
His group is planning to assume multiple loans already tied to the assets, which will put the new ownership on the hook for an average of 6 percent in interest payments. The goal is to create about $5 million in new value for the portfolio through renovations and new management practices.
“While Mr. DeRoo looks forward to vindicating his rights in court, he has no interest in commenting on ongoing litigation in the press,” David Graff, an attorney for DeRoo, said.
The second-largest portfolio F Street and CKO are buying is a six-property, 175-unit package that had previously been controlled by investor Adam Walls, who is behind Chicago-based 5812 Group. A lender recently stripped Walls’ ownership of 87 of the apartments, Patel told investors.
The other buildings under contract to the buyers are the 64-apartment property at 5220 South Harper Avenue in the heart of Hyde Park, which also has two commercial units. Oscar Hinojosa, Jr., had owned the building for a long time, but is not interested in spending the money, time and energy to rehabilitate the property, according to Patel.
That property will be totally vacated while the F Street and CKO venture replace its mechanical systems and make other upgrades to the unit.
The buyers are also eyeing a three-building portfolio with 42 units on South Ridgeland and South Euclid Avenues. The seller of those is California-based longtime owner Susan Drawdy, public records. Neither Hinojosa nor Drawdy could be reached for comment.
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