In a move that some see as hopeful and others fear could contribute to the slow march of gentrification through the city, hundreds of affordable housing units on Chicago’s South Side were auctioned off Friday to two for-profit investment firms.
The winning bidders were Chicago-based Longwood Development and a fund managed by Atlas Asset Management, an attorney for the seller confirms. The group bid about $35,000 per apartment, or $18.625 million total, according to Hilco Real Estate, which managed the private, court-appointed auction.
The portfolio of 45 buildings with 535 apartments included properties in Bronzeville, Washington Park, Englewood, Woodlawn, Chatham and South Shore. And while the properties were frequently described as “distressed,” the portfolio included six-flats with grand brick balconies, stately corner buildings with Greek goddesses carved into stone, properties overlooking boulevards and major South Side arteries, and classic 1920s courtyard apartments.
All were once part of a massive real estate portfolio put together by a dubious nonprofit, the Better Housing Foundation, that had promised tenants affordable housing and help, but instead ran the buildings into the ground and ended up in building court and bankruptcy. The nonprofit’s holdings are being auctioned off in parts; Friday’s sale was the largest.
Horrible conditions endured by tenants — one woman had a bathroom ceiling fall on her — were first revealed by the Chicago Tribune in 2018; investigative reporter Joe Mahr found that those involved in the original real estate deals made millions.
The nonprofit bought dozens of properties with tens of millions in low-interest loans from the Illinois Finance Authority — a sum far greater than what the properties yielded in Friday’s auction. Therefore, bondholders will get just a fraction of their investment. The Securities and Exchange Commission launched an investigation earlier this year.
The auction is seen by some as a ray of hope for the buildings, 40% of which are vacant.
“Today was a step in [the] process,” city Law Department spokeswoman Kathleen Fieweger said Friday in an emailed statement. She added that the city’s interest in the bankruptcy sale is “to see these buildings and units brought into compliance.”
But others say affordable housing is a scarce commodity — and this is a massive amount to auction off to the highest bidder.
“I hate abandoned buildings in our neighborhood.”
Washington Park resident Larita Sims hopes the sale means new life for 5600 S. Michigan, a 15-unit building that’s been boarded up for years, she said, ever since someone was shot in front of the building in broad daylight.
“I hate abandoned buildings in our neighborhood,” said Sims, who has lived in an apartment across the street for about five years. “It brings the property value down so, so greatly. So I would love to see somebody get it and clean it up. It would make me feel safe if it was open — as long as it’s somebody who was reputable and will take care of the property.”
That’s the goal of this auction, according to city officials and others.
Despite impacting several South Side neighborhoods, activists and even aldermen say this bankruptcy sale has been opaque. Ald. Jeanette Taylor, 20th Ward, said she knew nothing about it, though multiple buildings are in her ward, including 5600 S. Michigan.
An eight-flat graystone included in the portfolio, 5226-28 S. Michigan, features majestic turrets and sits next door to a 4,400-square-foot single-family home valued by the Cook County Assessor at $530,000.
“They say affordable housing,” said Taylor. “It starts off that way, then after two years … they’ll turn them into luxury studios and condos.”
Taylor lamented the power private developers have to gentrify neighborhoods. “These are these private deals I have no control over,” Taylor said.
Sims said rents in the Washington Park area are consistently above $1,300. Even on dicey blocks where she would imagine rents would be less “because a lot of stuff happens,” it would be hard to find a two-bedroom under $1,500, she said. “This neighborhood is already in that bracket.”
City of Chicago attorneys vetted every bidder ahead of time. In order to be qualified, bidders needed to prove to the city that they have a plan to bring the buildings up to code and the money to follow through.
But there is no requirement that the new owners keep the housing affordable.
Missed opportunity
Participants in the auction had to make offers on large groups of properties or on the entire bundle of 535 apartments — no one could bid on a single building — cutting out smaller, mom-and-pop landlords.
Eleven bidders qualified, including a California investment firm and one of the largest landlords on the South Side, Pangea Properties.
Earlier this summer. Pangea bought 13 Better Housing Foundation properties for the bargain-basement price of $3.9 million.
She said selling large numbers of properties to a single, giant landlord is a missed opportunity.
Green said the city could have used its influence in the bankruptcy proceedings to push for more creative solutions. Maybe the city could have bought the properties and then sold them to residents, she suggests.
The city could have offered assistance or financing so “maybe regular families — with lower incomes, moderate incomes — could buy these homes to live in,” Green said. “[So] that someone with even a decent job has the opportunity to live in the community and own in the community and determine what Chicago looks like in the future.”
All the properties up for auction are in predominantly African-American neighborhoods. Just 39% of Black households in Chicago own their home, compared to 74% of white Chicagoans.
A tenant at one of the Bronzeville properties who’s lived in the building seven years and gave his name as “Charlie” said his biggest suggestion for the new owners is adding a parking lot in the back. “The only thing wrong here is maybe a little bit of plumbing. But as far as the apartments are concerned, the apartments are all right, just a little bit of plumbing.” Charlie said a Section 8 subsidy helps him pay the rent, so he’s not overly concerned about increases.
City attorneys are requiring the new owners to allow current tenants to stay 90 days or until their lease expires, whichever is longer.
Hilco Real Estate said there was “active bidding” for both the neighborhood pools and the full portfolio.
The court has designated a two-week period during which people can raise objections before a judge makes the sale final. Another 181 units from Better Housing Foundation’s portfolio will be auctioned off next month.
Linda Lutton covers Chicago neighborhoods for WBEZ. Follow her @lindalutton.
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