Shakedown allegations could have chilling effect on Chicago real estate, years into the city’s development boom – Chicago Tribune

Bathhouses might become the preferred meeting place for Chicago real estate developers, zoning lawyers and aldermen to discuss upcoming projects.

And it has nothing to do with recent record cold temperatures.

“The joke among developers is that we’re all going to have to start meeting in saunas, because everybody’s worried about who’s going to be wired up,” said one longtime Chicago commercial developer, who asked to remain anonymous.

It remains to be seen how spot-on that punchline is, as property owners in the city brace for the fallout from recent allegations of property owners being shaken down while seeking assistance from public officials.

In the worst-case scenario, the unfolding drama could slow a nearly decadelong boom of construction and headquarters relocations in Chicago, cast suspicions even on law-abiding developers and politicians, and further erode public trust in a city with a reputation for backroom deals.

Left is the impression “that maybe it wasn’t business acumen but something else” if a development succeeds, said Chris Kennedy, a Chicago real estate owner who unsuccessfully sought the Democratic nomination in the last race for Illinois governor.

Kennedy’s family has been a major Chicago landlord since his grandfather, Joseph Kennedy, bought the Merchandise Mart in 1945. The family has since sold the building and the neighboring Apparel Center, and is now building the three-tower Wolf Point development alongside those buildings and the Chicago River.

“Of course there’s the perception (of corruption), because it’s reality,” Kennedy said. “And you’ve seen that play out in the last few days.”

Brian Cassella/Chicago Tribune
Chris Kennedy, stands in office in the Merchandise Mart in 2017. He oversees his family’s Wolf Point skyscraper development along the Chicago River.
Chris Kennedy, stands in office in the Merchandise Mart in 2017. He oversees his family’s Wolf Point skyscraper development along the Chicago River. (Brian Cassella/Chicago Tribune)

So far, an ongoing federal investigation has yielded a charge of attempted extortion by powerful Southwest Side Ald. Edward Burke; revelations that Ald. Daniel Solis, 25th, has been wearing a wire and cooperating with the FBI for at least two years; and reports that Illinois House Speaker Michael Madigan was secretly recorded by an associate of a developer who once planned to build a Chinatown hotel.

The developments have moved fully into the spotlight an issue that’s been discussed for decades: The potential for conflicts of interest when public officials maintain private careers in fields like property tax appeals.

Recent events also have stoked new conversations about potential abuses of a Chicago tradition often referred to as aldermanic prerogative or aldermanic privilege.

That policy essentially means that each of the city’s 50 aldermen have full discretion over the fate of real estate developments proposed in their wards. The level of real estate sophistication and approaches to development also vary widely from one alderman to the next, adding further layers of complexity, one developer said.

In the case of Burke, an alderman is accused of using power within his ward to try to steer a larger portfolio of real estate business to his law firm, Klafter & Burke. In a federal charge unsealed in early January, Burke is accused of trying to hold up construction permits for renovations to a Burger King restaurant in his ward unless the out-of-state franchise owner provided business to his law practice.

The charge came a few weeks after FBI agents raided Burke’s offices.

Burke, who has maintained his innocence and is running for re-election, has resigned as City Council Finance Committee chairman.

Madigan has long faced criticism for the property tax appeals work his firm, Madigan & Getzendanner, does in representing owners of Chicago skyscrapers and other properties while holding massive political clout.

Solis, who until recently chaired the City Council’s Zoning Committee, and Madigan have not been charged with any wrongdoing.

The developer who joked about meetings in saunas said most developers and public officials he’s encountered are on the up-and-up, but recent events might damage Chicago’s reputation as a place for large institutional investors to spend billions of dollars on real estate.

He likened it to Chicago’s reputation for violence, where a real problem becomes further exaggerated nationally.

“If there’s a perception of the Chicago Way, that you have to need to know somebody and pay to get in, it’s a perception akin to Chicago being called the murder capital,” he said. “That has an effect on willingness to invest in Chicago.”

Another Chicago-based developer, who also asked not to be named, said he’s seen investors think twice about doing business in Chicago because of its reputation for backroom deals and its historically “opaque” property valuation system. But he hopes the ongoing federal investigation, though a black eye to the city, could restore some confidence.

“After this recent news, you’d have to be completely crazy to try anything,” he said. “The party’s over.

“If anything, it’s probably good for the market. Root it out.”

Madigan’s firm filed appeals on nearly $8.6 billion in assessed property values in Cook County from 2011 to 2016, according to a ProPublica-Chicago Tribune analysis published in December 2017. The firm won a combined $1.7 billion in reductions from their clients’ initial property valuations, the analysis found. At the time of the analysis, a Madigan spokesman said the firm’s records showed its appeals resulted in roughly $1 billion in reductions.

Burke’s practice took on a combined $4.7 billion in Cook County appeals during the same time, winning nearly $865 million in combined reductions.

Property tax appeals are commonplace by homeowners and commercial real estate investors — particularly under recently replaced Cook County Assessor Joseph Berrios, whose office was found by the ProPublica-Tribune series to have calculated wildly inconsistent property valuations.

Along with the complexities of the Cook County property tax system, the potential for influence by public officials adds another element to weigh in the overall process.

This content was originally published here.

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