A Boston-based lender is suing for a chunk of the “imminent” $52 million sale of OC Ventures CEO Shangxuan Tan’s student housing complex in Greektown, according to a Cook County lawsuit.
The lender, Daili Xiao, a real estate agent and manager at investment firm Engel & Völkers Newton Centre, sued Tan in April, alleging he is entitled to a portion of the sale to recoup the more than $3.1 million Tan owes him.
The complaint adds another name to the list of people who doubted Tan’s ability to pay back lenders and raised questions about the truth behind Ivy Fund, the multifamily investment firm used to manage the property.
“Simply put, the Tan defendants cannot be trusted to comply with their obligations under the law,” Xiao said in his complaint.
Ivy Fund — an LLC controlled by Tan, whose firm is Chicago-based OC Ventures — recently closed its Chicago office, leaving no forwarding address. Tan, “who sits atop this empire,” claims to have a Boston address but has gone to Singapore “far from the reach of any United States court,” the complaint states.
The fund has been in default on its loan payments to Xiao since April 9, 2021, court records show. He is just one of several investors and lenders who claim they have yet to be made whole by Tan, whose business partner recently estimated owes more than $16 million following a slew of lawsuits filed against him and Ivy Fund.
Xiao sued Tan in New York, Delaware and Massachusetts courts, which returned verdicts in Xiao’s favor, and he recently brought his complaint to Chicago as the sale of the Letterman Apartments student housing building at 401 South Morgan Street is “imminent,” according to the complaint.
Tan borrowed $1 million from Xiao. After he defaulted on the loan, he offered Xiao “preferred equity payments” of $20,000 quarterly from 1475 Washington Avenue Associates, which owned property in Albany, New York. Tan promised to pay back the original $1 million loan when the property sold, the lawsuit alleges.
Xiao accepted, and later agreed to loan him an additional $2 million for a total debt of more than $3.1 million if the Greektown building sells.
Lawyers for Tan did not respond to requests for comment. Xiao declined to comment on his lawsuit against Tan.
Monroe Capital also sued Tan this year to assert its right to recover its $6 million loan from the sale, asking for $8.6 million after accounting for interest and fees owed. (The lender is not affiliated with a Chicago-based firm of the same name.)
Tan owes $38 million on his original mortgage from a Fannie and Freddie loan, leaving him enough cushion to pay all parties, in theory.
However, a recent response in an ongoing legal battle between Tan and his business partner, Shaofan Zhang, alleges that Ivy Fund’s debt load is larger than Tan has let on. Zhang claimed the company has been sued by investors and lenders who received judgments in their favor for a total of more than $16 million owed on top of the building’s original mortgage.
This means that even if the latest deal to sell the building to Chicago-based UpCampus Properties for about $52 million comes to fruition, Tan would still be about $2 million in the hole.
Similar to Xiao’s lawsuit, the Monroe Capital lawsuit filed in New York Supreme Court also accuses Tan of engaging in dishonest business practices, failing to communicate with lenders, and defaulting on loan payments before fleeing to Singapore. The suit also alleges that Tan extracted excessive property management fees from Ivy buildings.
Both lenders have suggested that Ivy Fund would be better off without Tan at the helm — a sentiment shared by Zhang, his chief investment officer.
Troubles between business partners
Tan sued Zhang in Cook County on Aug. 1, alleging that Zhang secretly conspired to oust him from Ivy Fund. Tan cited an email Zhang sent to lenders stating that it was “crucial to make an attempt to remove Tan as manager of Ivy.”
In a response from Zhang filed Aug. 15, Zhang claimed he has not been properly compensated for his role as Ivy Fund’s chief investment officer for years after Tan allegedly agreed to give him 10 percent “membership interests” in the fund as well as consulting fees paid to Zhang’s personal holding company.
Tan’s “incompetence” allegedly took a turn for the worse after pandemic-era campus shutdowns impacted Ivy Fund’s investments, and Tan failed to communicate with lenders, leading several of them to take legal action, Zhang claimed.
Since then, several investors and lenders including Xiao, Monroe Capital, Gang Zhao and an entity called Eastrich Real Estate Fund IV have received judgments against Ivy Fund or Tan for more than $16 million.
While Tan was “in the frenzy to address inquiries regarding Ivy Fund’s impending insolvency,” he misrepresented the payment of various loans to lenders, Zhang alleged.
Zhang responded to Tan’s allegations of an attempted takeover by saying that he was trying to do his job to find resolutions and properly manage the fund’s assets, work that he claims Tan impeded while also misappropriating funds for personal investments.
Tan has assured lenders that he had deals in the works to sell the student housing building at 410 South Morgan Street in the past, but each effort has fallen through. Now, Tan claims Zhang is trying to sell the building without his involvement, according to the lawsuit.
In Zhang’s email to lenders, included in the lawsuit, Zhang committed to selling the building and told the lenders that, without Tan in the picture, they would “have the peace of mind that sale proceeds are not going to just ‘disappear.’”
Zhang’s attorney said his client was “prohibited” from providing information about Tan and Ivy Fund, and declined to comment.
Layers of confusion
Xiao’s Cook County lawsuit also accuses Tan of creating what it refers to as a “confusing, multi-layered vertical ownership structure” used to “hide the true ownership of various assets.”
This is a common tactic used by owners of multifamily buildings who wish to obscure their identities from the public. New LLCs can be created and old ones dissolved any time owners want to start fresh or dodge accountability.
In this case, the Greektown student housing complex is owned by 410 South Morgan Street LLC, an entity whose business license was revoked by the state of Illinois last year. That now-defunct entity is owned by Ivy Fund I which is, in turn, owned by Chicago SH Partner I – also known as SH Chicago Partner I.
Chicago SH Partner I is 99 percent owned by Ivy Chicago Partner I and 1 percent owned by Ivy Fund, both of which are wholly owned by Tan, according to Xiao’s lawsuit.
Tan has seven other student housing buildings with similarly complex ownership structures, Monroe Capital Vice President of Operations David Wyman testified in the Xiao lawsuit.
In his complaint, Xiao acknowledged that there may be a legitimate reason for this set-up, but said he believes it is intended to “create confusion and make it difficult for creditors to secure repayment of funds owed (to) them.”
Read more
Commercial
Chicago
Monroe Capital sues to strip Tan’s Greektown student housing complex
Commercial
Chicago
OC Ventures’ Shangxuan Tan accuses partner of plotting to oust him from student housing firm
Residential
Chicago
OC Ventures courts buyers for West Loop student housing