Strategic Properties of North America’s Multifamily Woes

Strategic Properties of North America, a Chicago-area landlord that has made headlines for two failed condo deconversion deals, is facing legal turmoil with condo associations and fellow investors.

And at the same time, the company is also fighting to turn a profit on a handful of multifamily properties saddled with floating-rate debt.

Headed by investors Yitzy Klor and Saul Kupperwasser, SPNA also has an office in Lakewood, New Jersey. While the firm previously had success converting Chicago condominiums into apartment buildings, its momentum began to stall around 2020. That’s when the company made an offer to buy and convert a River North condo building known as Ontario Place and for three years failed to secure the financing needed to close the sale.

The Real Deal compiled the latest updates on legal and financial challenges facing seven properties partially, fully or previously owned by SPNA. Attorneys and representatives of the firm did not return requests for comment.

Lawsuits

10 East Ontario Street, Chicago

SPNA’s three-year-long attempt to close on a bulk purchase of Ontario Place recently ended with the company facing legal trouble over missed condo fees on the 37 condo units in the building that it already owned.

10 East Ontario Place (Google Maps, Getty)

The Ontario Place Condo Association terminated its agreement to sell the building at 10 East Ontario Street to SPNA for $190 million in June of last year. The association lost faith that the company would ever close the deal when it requested a $700,000 payment as a show of good faith and the company did not comply.

A year later, the condo association filed over $303,000 in liens against 37 units owned by SPNA affiliates for failing to pay their monthly dues to the association, Cook County property records showed.

A judge recently sided with the condo association, meaning the association could have the right to rent out any vacant units or transfer rent payments from occupied units to the associations’ coffers until the missed dues are fully covered.

200 North Dearborn Street, Chicago

Around the same time that the Ontario Place Condo Association was taking SPNA to court for unpaid fees, a separate condo board in Chicago was considering terminating a deal to sell its building to the firm.

For two years, representatives of SPNA claimed the company was in the process of securing financing to close a $95 million deal to buy the condo building at 200 North Dearborn Street.

Before the deal fell apart, SPNA representatives assured condo owners that financing was coming from a lender known as Fairchild but regulatory issues with the lender’s overseas debt fund were stalling its progress.

Delays in closing the sale led to in-fighting among condo owners, a tense condo board election and finally a vote to terminate the deal in May.

The owner of the penthouse unit at 200 North Dearborn, which he owns under an LLC known as Blitz Capital, sued SPNA, alleging that the firm “misrepresented their financial ability to complete the purchase of Blitz’s unit and other units in the building.”

In a response to the lawsuit filed in July, an attorney for SPNA alleged that the condo association’s termination of the deconversion deal voided any alleged promises to buy individual units.

The response also called Blitz Capital’s consumer fraud claims “vague” and “esoteric.” Any mention of offering to buy individual units prior to the close of the building sale was “second hand misrepresentation,” according to the legal filing.

21 East Chestnut Street, Chicago

Members of a well-known Chicago real estate family have also been caught up in legal drama with SPNA.

In August of last year, lender HIG foreclosed on 21 East Chestnut, which SPNA owned with some members of the prominent Cacciatore family. The Cacciatores tried to block the foreclosure, alleging the default on the loan was caused by SPNA.

The foreclosure proceeded but a lawsuit between the Cacciatores and SPNA is ongoing.

450 Sullivan Lake Boulevard, Lakemoor

SPNA’s legal troubles are not confined to the urban core.

450 Sullivan Lake Boulevard (Google Maps, Getty)

An investor named Ari Haas in 2015 formed an entity called Monticello Investments to put $500,000 into a venture that SPNA was leading to buy the 496-unit Meadows Apartments property in suburban Lakemoor. Haas claims their agreement was based on a promise that Monticello would get 20 percent of the net profits from rent revenue the property generated as well as any eventual sale.

SPNA bought the property for $53 million in 2015 and sold it for $64.5 million ($130,000 per unit) in 2018. Haas alleged that an entity Monticello was part of was owed $4.5 million out of the 2018 sale’s proceeds, and that Monticello should have gotten a 20 percent split of that figure, which would’ve been $900,000. Instead, Haas claims Monticello only received $238,000.

In response to the complaint, SPNA’s attorneys pointed to an expert witness who said Monticello was paid “precisely what it was due.” The response also alleged that Monticello hadn’t proven that any operating agreement between the entities involved in the transaction was enforceable. The lawsuit is still pending.

Sub-performing loans

Amid its legal troubles, SPNA is fighting to turn a profit on some Chicago multifamily buildings that are struggling with floating rate loans as interest rates soared over the past few years.

1334 North Dearborn, Chicago

A Gold Coast apartment building owned by SPNA is watchlisted due to its floating rate loan slashing profits, according to loan commentary from credit ratings service Morningstar Credit last month.

1334 North Dearborn (Google Maps, Getty)

The property is a 94-unit apartment tower at 1334 North Dearborn that SPNA successfully converted to apartments.

2 East Oak Street, Chicago

SPNA has another floating rate loan in trouble in the Gold Coast neighborhood. Although its $48.5 million note for 2 East Oak is not watchlisted or delinquent, Morningstar shows its debt-service-coverage-ratio is 0.70. That means income from the building only covers 70 percent of debt service payments.

2625 North Clark Street, Chicago

In Lincoln Park, SPNA is struggling to cover debt costs for its 133-unit apartment tower at 2625 North Clark Street. The building, known as The Kent, is watchlisted and has a DSCR of 0.82. Loan commentary shows the building has a floating-rate loan and suffered water damage that set its profits back.