It’s the third group of properties owned by the foundation to wind up in Bankruptcy Court this year, and probably won’t be the last. After borrowing heavily through the Illinois Finance Authority to finance an aggressive acquisition binge several years ago, the nonprofit has racked up thousands of building code violations and defaulted on about $170 million in bonds, frustrating tenants, city officials and the investors that own the debt. The U.S. Securities & Exchange Commission also launched an investigation of the nonprofit.
“These deals were dead on arrival,” said Andrew Belew, who took over as president and chairman of the Better Housing Foundation in 2018, after the departure of its original management team.
The nonprofit borrowed way too much and built its business on the assumption that it wouldn’t have to pay property taxes because of its tax-exempt status, Belew said. After losing that status, the business no longer worked, he said.
Now, real estate investors like Pangea are circling the charity’s properties, which are badly in need of repairs. And the bond investors who own the debt on the apartments are facing huge losses.
Pangea, which recently paid $3.9 million for the first Better Housing Foundation portfolio to wind up in bankruptcy, plans to spend another $10 million to $13.5 million fixing up the 281 apartments, said Pangea CEO Peter Martay.
He expects the firm will spend about $6 million to $8 million rehabilitating the latest group of properties to land in bankruptcy. The venture that owns the portfolio, which includes 181 apartments in Chatham, Washington Park, Beverly and South Shore, filed for Chapter 11 protection Sept. 1.
All of the Better Housing Foundation properties “had been significantly undercapitalized and mismanaged for quite some time,” Martay said.
An attorney for Chicago real estate executive L. Mark DeAngelis, the original manager of the nonprofit’s Chicago properties, was not immediately available.
Pangea is what’s known as a stalking-horse, a preferred bidder that signs a contract to buy an asset in bankruptcy before an official court-supervised auction. Though stalking horses typically wind up owning properties put up for auction, they can be outbid by other investors.
Santa Monica, Calif.-based Saybrook Fund Advisers is the stalking horse for the biggest Better Housing Foundation portfolio to land in bankruptcy court. In July, Saybrook agreed to pay $8 million for 45 buildings totaling 545 apartments owned by the nonprofit, less than a sixth of the $55 million in debt secured by the properties. Belew expects bids from multiple other investors in the Oct. 2 auction for that portfolio.
“The interest has been extremely good,” he said.
The auction for the third portfolio is scheduled for Oct. 27.
Bankruptcy filings may also be in the future for the Better Housing Foundation’s other two portfolios, which include apartments in suburbs including Glen Ellyn, Mundelein and Blue Island. The nonprofit has defaulted on about $58 million of bonds on the properties, and the bonds have traded recently for less than 60 cents on the dollar, according to public filings.
Belew declined to say whether the suburban properties also are headed for Bankruptcy Court.
“Stay tuned,” he said.
Asked about the SEC’s investigation of the nonprofit, Belew said the foundation turned over about 17,000 pages of documents to commission staff earlier this year but has heard nothing since. He said he and the nonprofit’s current board have done nothing wrong, believing the SEC is focused on its original management team.
“They asked for documents and we gave them everything we had,” Belew said.
via Crain’s Chicago Business
September 8, 2020 at 04:56PM