M.aRgerita Humolli had few qualms about her condo board’s longtime legal counsel, KSN, until she learned that a Chicago law firm had converted at least 70 condos into apartments. There was no doubt that her interests were at odds with her own.
“70 deconversions!? I didn’t know anything about it,” she said, considering a $96 million offer from Strategic Properties of North America to convert the 47-story Loop building into a rental. I emailed her when I was there, but she disagrees. “That’s insane. I don’t think anyone knows.”
T.The three-month-long battle over 200 North Dearborn Street is just one chapter in a story unfolding across Chicago. Some apartment properties are worth nearly double the same building used as a condo, and knowledgeable owners take advantage of approval votes to get higher offers and his five-figure cash incentives can do.
N.o Dominating the world more than KSN’s Kelly Elmore, who has completed 12 deconversion deals in the last four years and reached $525 million in sales, far ahead of his rivals.
Elmore, KSN and Strategic Properties did not respond to multiple requests for comment. Competitors tend to pay backhand tribute to Mr. Elmore’s practices.
W.Elmore’s firm consulted condominium boards and conducted scrutiny by arranging deals with landlords such as Itzy Kroll’s Strategic Property, one of Illinois’ most aggressive condominium demolition buyers. I came.
HaCritics say that while KSN claims to be neutral, the company is biased towards buyers. Because under state law, attorneys can be heavily rewarded for structuring contracts to perform all closing duties and receive a commission for each unit sold. In addition, law firms can ask buyers to offer some condo owners a five-figure bonus payment if he votes in favor of deconversion. The company’s familiarity with the process makes Elmore a threat to those who don’t want to sell because they can’t buy or rent nearby, especially when cash incentives are mixed, critics say. .
“Large condominium associations require huge amounts of money,” said R. Kymn Harp, commercial real estate attorney at Robbins DiMonte. “It may dictate how they interpret the condo board’s fiduciary duty to unit owners.”
eLmore, who attended high school in Indianapolis, college in DePauw, and earned a law degree from DePaul in 2004, doesn’t hesitate to make her record public. A tidbit of information about the 70’s deconversion comes from the KSN website. There, Elmore discusses the deconversion situation in a podcast. The latest deal on the website, her eight condominiums in a 427-unit complex in suburban Elk Grove, closed in February for $56 million.
KSNMore Elmore, who was named one of the state’s most ethical and professional attorneys under 40 in 2017 and 2018, said on the KSN podcast in April, “I actually spent more time in prison than in rehab.” It’s easier to get someone to sign the document.
“There’s going to be a lot of outrage at these meetings, and Kelly will probably suffer a lot,” said Howard Dakoff, a condo attorney at Levenfeld and Pearlstein Law Firm. And do you think she needs to have a somewhat hardened exterior in order to be exposed to the anger and violence expressed by her owner? Yes.”
K.SN is one of the few law firms with a team dedicated to deconversion, which requires a quasi-democratic process involving hundreds of sellers and one buyer. Convincing the investor-mostly-owned condominium community is a far cry from dealing with a unit inhabited by hundreds of owners, so it’s clear they need a subtle touch. means.
“A lot of the buyers we work with are very active in deconversion sales,” Elmore said on the podcast. There is no pool, but we have found that there is definitely a certain subset of buyers who really like and enjoy buying these types of deals.”
S.He often told condo owners who scoffed at unsolicited offers to see how sweet the deal would be, and told condo boards to avoid voting on the consent form and instead buy the entire deal. tell them to consider it. If buyers raise prices, those who oppose deconversion proposals may be the first to vote in favor, Elmore said.
“These meetings can start off in a very volatile state,” said Elmore, who has now disabled commenting in video conferencing to avoid distractions.
“For some associations, it will require a high purchase price to get owners to vote,” she said. “In other deals we’ve done, buyers have to be very creative in incentivizing owners to vote for the deal, whether it’s an incentive in advance of the deal or not. did not. or an incentive to receive funds after closing. “
debtOr, owners, KSN, and others, including Chuhak & Tecson, will be a godsend and devise deconversions to help solve underage mortgages and long-term underfunded maintenance and repairs. Conversions are particularly frequent in buildings like Humori, which were originally built as apartments but converted into condominiums for sale as the housing market overheated in the 2000s. Some of them never recovered in value from the Great Recession and should never have been converted in the first place.
“If you own a condo that is in disrepair and all the owners are pissed off and you can’t fix it, KSN could be your best friend,” said Matt King. It’s in the far northwest suburbs.
〇On the other hand, “KSN is not the friend of someone who wants to protect their home,” says King. He led a series of candidates who gained control of the Condominium Board, which was in the process of firing KSN and hiring a new law firm.
MeIt’s the tilt of the balance that’s upsetting some condo owners. Law firms can structure contracts so that some residents get bonuses from buyers in exchange for voting to approve the deconversion.
T.This is what happened with the Humori building, and if they had voted yes by February to mid-March, the seller could have gotten an additional $20,000 on top of the value of the unit. realHowever, the contract did not specify how long the voting period would last. It remained open for months and the incentive period ended on May 12 after being extended multiple times.
K.SN says it is complying with the law and is not coercing owners to accept the offer.Elmore and his colleague Omar Malik said on the April podcast that they play it straight.
“We do not represent buyers,” Malik said. “Our role is not to encourage people to vote in any way. It’s about answering questions that the board and owners have to make decisions and be able to vote in some way.”
However, mFor that matter, deconversion buyers often own multiple units, become members of condominium associations, and sometimes even sit on condominium boards. So it’s unclear if lawyers like Elmore work for the board or for potential owners, including those who don’t want to sell. She knows it’s not going to be easy.
“Like the board of directors, we represent owners who don’t want to sell, we represent owners who want to sell tomorrow, and we think it’s the best deal we’ve ever seen,” she said on the podcast. “It’s a difficult position.”
B.uyers must meet high standards. The law stipulates that owners who own at least 85% of the value of a building must vote in favor of the sale to complete the sale. Once the voting threshold is met, the transaction is closed and ownership is removed from anyone who opposes the sale of the home.
S.Having purchased multiple deconversions, including the $190 million most expensive in Chicago, trategic Properties is no stranger to KSN. Elmore’s firm was the seller’s attorney for the conversion of 1400 Lake Shore Drive in 2019. This was his $107 million purchase by Strategic Properties, a record price at the time.
“It’s pretty notable that KSN is a big part of these deals as the way they’re enforced,” said Robbins DiMonte attorney Harp. “Because they are willing to do what they have to do.”
H.Arp and lawyers such as Chuhak & Tecson’s David Bloomberg are calling for deconversion to be made more transparent, removing side deals and vote-buying from the process. His association team of four condos at Bloomberg has gone through his 40 deconversions on either the buy-side or the sell-side.
B.Rumberg led the unit owners who sued the South Loop Condominium Board, which had been advised by KSN in its 2018 legal battle over the sale of $90.5 million. oRiver City Property at f 800 South Wells Street. The lawsuit accused the board of lying about extending the voting period and allowing buyers to “bribe” dissenting unit owners to change their minds. ended in 2018, almost three years later.
“There are a lot of inflection points in these deals that make you want to cut corners,” Bloomberg said. “When it’s at this level and it’s very likely that developers will intervene in the voting process behind the scenes, we need formal legislation to ensure that certain data points are made public. should not.”