Controversial fund to auction former Dominick's site
(Crain's) — A $7.9-million loan on a former Dominick's site in Lake View is turning into a sour deal for a controversial investment fund managed by developer Allison Davis and a nephew of Mayor Richard Daley.
The fund managed by Mr. Davis and Daley nephew Robert Vanecko is seeking to auction off a site at 3012-3036 N. Broadway St. after an apparent default on the mezzanine loan by a venture owned by little-known Chicago developers Michael O'Connor and Jonathan Zitzman, according to a recently published notice of public sale.
The developers planned a 53-unit condominium building and a bigger Dominick's to replace a store destroyed by fire in 2005.
The auction comes just a couple months after news reports that Chicago's inspector general is investigating millions of dollars in investments by city pension funds in the fund, called DV Urban Realty Partners L.P., according to news reports. The auction is to take place June 5 at the office of law firm DLA Piper LLP, according to the notice.
Messrs. Connor and Zitzman bought the site for $16 million in early 2007 through a venture called Broadway 3012 LLC from the founding family of Dominick's Finer Foods LLC, the DiMatteos, according to property records.
The new Dominick's would have been twice the size of the original 20,000-square-foot store. In early 2008, the developers refinanced the property with a $10-million first mortgage from First Bank, based in suburban St. Louis, and a $7.9-million mezzanine loan from Urban Broadway Mezz LLC — an affiliate of DV Urban Realty, which is run by Mr. Davis and Mr. Vanecko. Mr. Davis' son, Jared Davis, is also a manager of Urban Broadway Mezz.
Dominick's had a lease in place for the new development, according to property records, and there was a groundbreaking last fall, although work didn't get far. The developers are holding out hope, however, and in a statement blamed the credit crunch for the project's woes.
"We continue to work with all interested parties to find a solution for the problem caused by the frozen credit markets. We are still committed to bringing the Dominick's store," Mr. O'Connor said in an e-mail. The two developers declined further comment.
A Dominick's spokeswoman couldn't be reached for comment.
Patrick Thompson, a DLA Piper attorney representing DV Urban Realty, confirmed the sale is set for June 5 but declined further comment.
Technically, the sale is to auction off the 100% ownership stake that three limited liability companies controlled by the developers have in Broadway 3012, which holds title to the property. Bidders are required to make a $250,000 deposit that's non-refundable to the winning bidder, and Urban Broadway Mezz may also bid, according to the sale notice.
The status of the first mortgage is unknown, but First Bank has not filed a foreclosure suit.
Messrs. Davis and Vanecko didn't return calls seeking comment.
The city's Inspector General, David Hoffman, is investigating how DV Urban obtained investments totaling $68 million from five city pension funds, according to the news reports. Chicago police officers and others have raised questions about their pension funds' investments with DV Urban.
It's unknown what triggered the apparent default by Messrs. O'Connor and Zitzman, but the public sale notice cites sections of the Illinois Uniform Commercial Code that lay out procedures for "disposition after default."
In addition to the apparent default, Broadway 3012 was hit with a lien in March by the project's lead architect, Hartshorne Plunkard Ltd. The Chicago-based firm claims the developers owe $213,283 for its services after the firm entered into a contract for the project in January 2007. Hartshorne Plunkard last worked on the project Feb. 5, according to the lien.
An executive with the firm, Raymond Hartshorne, didn't return a call late Tuesday seeking comment.
