The Blago Trial

Cecil Butler started managing the Lawndale Restoration, a low-income community in 1974. In 1995, Cecil Butler received a $51 million loan, backed by the state, to renovate Lawndale Restoration. In 1999, Valerie Jarrett’s Habitat formed an LLC with Butler’s Boulevard Management. In 2000, Cecil Butler hired the Habitat Company to manage Lawndale Restoration.

According to ACORN, problems at the property included “cracked masonry, defective porches, rodent infestation, leaks, broken doors, missing locks, and standing water.” HUD estimated that repair costs for the nearly 1,000 salvageable units to be $44.9 million, or about $45,000 per unit.

In 2005, Lawndale restoration tenants marched against Cecil Butler demanding the removal of the slumlord.

“Cecil Butler has got to go, we don’t want to see him no mo’!” shouted Anna Morrison a 30-year tenant of the Lawndale Restoration Apartments.

Morrison was one of 100 tenants and members of the Lawndale Neighborhood Organization that Jan. 31 paid a visit to Joseph Galvan, regional director of the Department of Housing and Urban Development. They demanded that HUD immediately take over as property manager of 100 buildings in the Lawndale community.

HUD has told tenants foreclosure proceedings against Butler have started, but his management company, Habitat Boulevard, is still responsible and receiving payments for taking care of the buildings.

. . .

“I have been living in these buildings for over 20 years and they have never done a good job of keeping up the buildings or responding to tenants requests for service,” said Satria Martin, at a recent meeting of the west side tenants.

Though tenants are happy HUD has begun foreclosure proceedings, they were shocked to learn Butler and Habitat are still being kept as the management company. Butler, who hasn’t paid his $400,000 mortgage in five months, was instructed by HUD to use the money to keep up the properties. Tenants have seen no evidence of improvements. With the buildings already in foreclosure, tenants fear Habitat will scrimp on already poor service.

“They never did anything to begin with so you can’t expect them to spend more money now that they know the buildings are in foreclosure,” said Rosalyn McComb, a 10-year tenant of the properties.

The mortgage for the properties is insured by HUD, thus Butler’s company will not be required to pay the note. Tenants are asking HUD to take over as “mortgagee in possession” that would make HUD responsible for bringing in a new management company to maintain the buildings. “In addition to not getting things fixed, I have to sweep and mop the hallway and the staff constantly treats the tenants with no respect,” said McComb.

. . .

Sparked by tenant complaints of problems throughout his buildings the city Department of Buildings inspected all of Butler’s properties finding a huge number of violations.

The situation was highlighted in a Nov. 21 front-page Chicago Tribune article that showed Butler used money from the properties to finance deals in the affluent Gold Coast section of Chicago.

(Online Disclosure January-February 2005)

Jarrett Failed Tenants; Building Collapsed

In 2004, a woman backed her vehicle into one of the buildings, and it partially collapsed. That same year, the city of Chicago requested the federal government take control after inspectors found 1,800 code violations in units that were “dilapidated to the point of being uninhabitable.” These problems included leaky roofs, rats, crumbling walls, exposed wires, and pools of sewage. Over a four year period, the city of Chicago sued Butler and his businesses 50 times for failing to keep Lawndale Restoration up to code. Although an alderman’s brother’s security firm was paid $2.75 million over a four year period to provide security guards, residents still did not feel safe.

Residents have complained for years of poor maintenance and the city reported 1,800 violations in the 100 scattered buildings after doing inspections at the request of the tenants.

. . .

Butler and his company have been under heavy scrutiny since September 2004, when a car backed into a pillar of one of his properties. The car was barely moving but the building partially collapsed.

(Online Disclosure January-February 2005)

According to the Chicago Tribune, Butler “presided over a flow of more than $150 million in government funds through the apartments.” Rent payments alone amounted to over $10 million per year. In 2006, Lawndale Restoration was seized by the federal government.

In 2006, in the final disposition of the dissolved Lawndale Restoration, its properties were sold back to the City of Chicago for $10 (ten).  And, the U.S. Department of Housing & Urban Development (HUD) assumed the $51 million debt at the foreclosure sale. Butler walked away. Twenty-three smaller profit and non-profit developers eventually assumed responsibility for the properties.

(Daily Musings 9/12/08)

Poor Suffered in Squalor; Slumlord and Democrats Cashed In

Butler is a very generous donor to Democrats, including Obama. He continued to give generously even after he fell behind on his HUD-subsidized mortgage for Lawndale Restoration.

One of those [Obama’s] contributors, Cecil Butler, controlled Lawndale Restoration, the largest subsidized complex in Chicago, which was seized by the government in 2006 after city inspectors found more than 1,800 code violations.

Butler and [Allison] Davis did not respond to messages. Rezko is in prison; his lawyer did not respond to inquiries.

. . .

Under Mayor Richard M. Daley, who was elected in 1989, the city launched a massive plan to let private companies tear down the projects and build mixed-income communities on the same land.

The city also hired private companies to manage the remaining public housing. And it subsidized private companies to create and manage new affordable housing, some of which was used to accommodate tenants displaced from public housing.

Chicago’s plans drew critics from the start. They asked why the government should pay developers to perform a basic public service – one successfully performed by governments in other cities. And they noted that privately managed projects had a history of deteriorating because guaranteed government rent subsidies left companies with little incentive to spend money on maintenance.

Most of all, they alleged that Chicago was interested primarily in redeveloping projects close to the Loop, the downtown area that was seeing a surge of private development activity, shunting poor families to neighborhoods farther from the city center. Only about one in three residents was able to return to the redeveloped projects.

“They are rapidly displacing poor people, and these companies are profiting from this displacement,” said Matt Ginsberg-Jaeckle of Southside Together Organizing for Power, a community group that seeks to help tenants stay in the same neighborhoods.

“The same exact people who ran these places into the ground,” the private companies paid to build and manage the city’s affordable housing, “now are profiting by redeveloping them.”

Barack Obama was among the many Chicago residents who shared Daley’s conviction that private companies would make better landlords than the Chicago Housing Authority.

He had seen the failure of the public projects in the mid-1980s as a community organizer at Altgeld Gardens, a large public housing complex on the far South Side.

He once told the Chicago Tribune that he had briefly considered becoming a developer of affordable housing. But after graduating from Harvard Law School in 1991, he turned down a job with Tony Rezko’s development company, Rezmar, choosing instead to work at the civil rights law firm Davis, Miner, Barnhill & Galland, then led by Allison Davis.

The firm represented a number of nonprofit companies that were partnering with private developers to build affordable housing with government subsidies.

Obama sometimes worked on their cases. In at least one instance, he represented the nonprofit company that owned Grove Parc, Woodlawn Preservation and Investment Corp., when it was sued by the city for failing to adequately heat one of its apartment complexes.

. . .

In 2001, Obama and a Republican colleague, William Peterson, sponsored a successful bill that increased state subsidies for private developers. The law let developers designated by the state raise up to $26 million a year by selling tax credits to Illinois residents. For each $1 in credits purchased, the buyer was allowed to decrease his taxable income by 50 cents.

Obama also cosponsored the original version of a bill creating an annual fund to subsidize rents for extremely low-income tenants, although it did not pass until 2005, after he had left the state Senate.

. . .

The developers gave Obama their financial support. Jarrett, Davis, and Rezko all served on Obama’s campaign finance committee when he won a seat in the US Senate in 2004.

. . .

. . .

Chicago’s struggles with the deterioration of its subsidized private developments seemed to reach a new height in 2006, when the federal government foreclosed on Lawndale Restoration, the city’s largest subsidized-housing complex. City inspectors found more than 1,800 code violations, including roof leaks, exposed wiring, and pools of sewage.

Lawndale Restoration was a collection of more than 1,200 apartments in 97 buildings spread across 300 blocks of west Chicago. It was owned by a company controlled by Cecil Butler, a former civil rights activist who came to be reviled as a slumlord by a younger generation of activists.

Lawndale Restoration was created in the early 1980s, when the federal government helped Butler take control of a group of old buildings, including lending $22 million to his company to redevelop the buildings and agreeing to subsidize tenant rents. In 1995, Butler’s company got a $51 million loan from the state to fund additional renovations at Lawndale Restoration. In 2000 Butler’s company brought in Habitat Co. to help manage the complex.

Nonetheless, the buildings deteriorated badly. The problems came to public attention in a dramatic way in 2004, after a sport utility vehicle driven by a suburban woman trying to buy drugs struck one of the buildings, causing it to collapse. City inspectors arrived in the ensuing glare, finding a long list of code violations, leading city officials to urge the federal government to seize the complex.

In the midst of the uproar, a small group of Lawndale residents gathered to rally against the Democratic candidate for the US Senate, Barack Obama.

Obama’s Republican opponent, Alan Keyes, trailed badly in the polls and was not seen as a serious challenger. But the organizers had a simple message: Cecil Butler had donated $3,000 to Obama’s campaign. Habitat had close ties to Obama. And Obama had remained silent about Lawndale’s plight.

Paul Johnson, who helped to organize the protest, said Obama must have known about the problems.

“How didn’t he know?” said Johnson. “Of course he knew. He just didn’t care.”

Butler did not return messages but in the past has said the government did not give him enough money to maintain the project. Habitat emphasized in a statement that its role at Lawndale was restricted to tasks that included financial oversight and management.

In 2006, following the foreclosure, the federal government sold the buildings to the city for $10. The city has since parceled out the buildings among two dozen developers, who are rebuilding Lawndale for the fourth time with yet another round of government loans and subsidies.

Even as Lawndale Restoration and Rezmar’s buildings were foreclosed upon, and Grove Parc and other subsidized developments fell deeper into disrepair, Obama has remained a steadfast supporter of subsidizing private development.

And although he has distanced himself from Rezko, Obama has remained close to others in the development community. Jarrett participates in the campaign’s senior staff meetings. And Obama chose another close friend, Martin Nesbitt, as his campaign treasurer. Nesbitt is chairman of the Chicago Housing Authority, one of the key overseers of the shift toward private management and development.

. . .

Some people in Chicago’s poorest neighborhoods are torn between a natural inclination to support Obama and a concern about his relationships with the developers they hold responsible for Chicago’s affordable housing failures. Some housing advocates worry that Obama has not learned from those failures.

“I’m not against Barack Obama,” said Willie J.R. Fleming, an organizer with the Coalition to Protect Public Housing and a former public housing resident. “What I am against is some of the people around him.”

Jamie Kalven, a longtime Chicago housing activist, put it this way: “I hope there is not much predictive value in his history and in his involvement with that community.”

(The Boston Globe 6/27/08)

LAWNDALE IS NOT supposed to be Alan Keyes Country. According to a recent Tribune/WGN TV poll, Keyes is getting just 3 percent of Illinois’ African-American vote in his Senate race against Barack Obama. But last Friday afternoon a crowd milled around the mother-and-child statue at the corner of Kedzie and Douglas, waving Keyes placards and getting ready to board a charter bus with the candidate’s name on the side.

The bus was scheduled to take them to Lawndale Manor, the crumbling low-income housing project overseen by Cecil Butler, a contributor to Obama’s campaign. . . .

Keyes was invited to Lawndale by members of V.O.T.E. 4 Hip Holitics, an inner-city political action group founded by ex-cons who are fed up with the Democratic Party. (V.O.T.E. stands for Voice of the Ex-Offender.) For the last 40 years, they say, blacks have been voting almost unanimously for the Democrats, yet Lawndale is still a slum: the houses are collapsing, the streets are unsafe, and the young men are going to prison in greater numbers than ever.

. . .

Many of the Keyes supporters were incensed about Lawndale Restoration, which operates 1,200 units of federally subsidized housing, including Lawndale Manor. One of the buildings collapsed when a car backed into it last month. After that incident city inspectors swept through, declaring more than 100 of the units uninhabitable. Cecil Butler, the project’s general partner, was given a $51 million state-backed loan to refurbish low-income housing in Lawndale. Since 1997 he has taken in $84 million in rent, mostly through federal subsidies. Over the past four years the city has sued Butler and his various entities 50 times for not keeping Lawndale Restoration properties up to code. Butler has, however, given $4,000 to Obama’s campaigns over the past five years. Some of the crowd wondered if that puts Obama in Butler’s pocket. “It’s like being paid under the table,” said neighborhood resident Lawona Fitzpatrick, who held a Keyes sign.

(Chicago Reader 10/29/04)

The federal government is poised to foreclose on [Cecil] Butler’s patchwork of 1,200 apartments known as Lawndale Restoration.

This fall inspectors found more than 1,800 code violations in the broken-down buildings, from leaking roofs to sewage in the basements, dangling wires to rickety porches.

Now the wealthy landlord, Butler is the target of community outrage. A new generation of activists points to the tenements as evidence that Butler traded on [M.L.] King’s legacy for personal gain.

He has presided over a flow of more than $150 million in government funds through the apartments. Some of those millions have gone to companies Butler controls.

Money has flowed in other directions, as well. One group of Lawndale investors leveraged the apartments to buy Gold Coast condos. The ChevronTexaco oil company used the tenements as a tax shelter to write off profits. Lawyers, accountants and brokers profited from government refinancing deals. A suburban insurance dealer admitted bilking the apartments by inflating premiums.

“I know that lots of rich people benefit … which is basically the way the economy works,” said Butler, 66. “In order to trickle down a little drop of the benefit, in order to secure affordable housing, you have to see what will make people with their money come in here and make an investment.”

By his own assessment, Butler has been overwhelmed by the sheer complexities of trying to rebuild a neighborhood in ruins. He says he’s evolved from idealist to pragmatist, while achieving modest gains such as a new shopping center and senior citizen complexes. A fresh injection of government money, he contends, could also save Lawndale Restoration.

Hampered by the spiraling costs of repairs, utilities and insurance, Butler is almost three months behind on his government-backed mortgage. The U.S. Department of Housing and Urban Development has rebuffed his plea for a massive refinancing. Foreclosure would leave taxpayers on the hook for the $47 million balance of a 1995 loan.

The apartments are likely to be auctioned off. By Butler’s estimation, the sale would bring in less than $20 million–a tiny fraction of the tax dollars pumped into the project over the years.

Hope in short supply

From North Lawndale, the Sears Tower pokes up from the eastern horizon, a reminder that the Loop’s wealth is just 10 minutes away. Yet only a few pockets of new construction suggest any hope of revival in the neighborhood. A smattering of garbage-strewn lots and boarded buildings along Roosevelt Road are remnants of the destruction of 1968.

The worn graystones and courtyard apartment buildings of Lawndale Restoration stretch for blocks along Douglas Boulevard, Independence Boulevard and other streets. Single mothers shuttle kids from the apartments to school past open drug deals. They steer children clear of dark stairwells that, according to residents, are alcoves for prostitution.

“My kids never come out the front door without me,” said Tonia Harris, a resident of 3655 W. Flournoy St., where the entry features a bullet hole, a broken lock and a dismantled buzzer system.

On 18th and 19th Streets, where one Butler building partially collapsed in September, residents said complaints about rats, bad plumbing, crumbling walls and faulty wiring have long been ignored.

“We’re sitting on a death trap,” said Belinda Brickhouse, explaining how sparks recently flew out of the switch when her daughter Chessidy, 18, flipped on a kitchen light. Brickhouse is one of dozens of Lawndale Restoration tenants who have called for Butler’s ouster during tense meetings with local officials.

Near dusk on a November afternoon, Carol Matthews, 43, got ready to plug a flimsy extension cord into an outside outlet on her building at 705 S. Lawndale Ave. For the sixth night in a row, she had electricity in only one room of a unit she shares with her mother, daughter and granddaughter, she said. Repeated calls to the maintenance office didn’t fix the problem, she said.

“We just sit in the dark,” Matthews said. “All they do is take my name and say, `OK.’”

Such conditions are a long way from Butler’s out-of-the-ashes idealism of 1968.

. . .
Neighborhood frustration grew as Butler’s shopping center took 25 years to build and the community lost control of another source of economic power, Community Bank of Lawndale.

Butler and others organized the bank in the 1970s as a black-owned financial institution. It was sold last year to a company owned by Asian-Americans as regulators threatened to seize it because of bookkeeping problems and inadequate funds. Butler relinquished day-to-day control as the bank’s president 19 years ago, amid similar questions from regulators.

“They felt I didn’t need to be running the real estate company and the bank so I stepped down,” Butler said. His real estate company had gotten loans from the bank “to pay gas bills and other things” at his apartments.

“It has always been a struggle,” he said with a lawyer’s crisp pronunciation spiced with a soft drawl from his native Tennessee.

Others who shared Butler’s community vision are disappointed.

“We all had great hopes, but it just didn’t pan out,” said Willie Mae Bowling, a former board member of the Lawndale People’s Planning and Action Conference.

Seeing an opportunity

The bank and commercial properties were overshadowed by the massive task of housing 1,200 low-income families.

Butler became a landlord in 1974 when the federal government asked his community group to take over hundreds of apartments that had gone into default. Butler said he saw it as an opportunity to improve tenants’ quality of life and bolster prospects for his planned shopping center.

The buildings led Butler to master the complex financing rules of subsidized housing. He scored his first coup in 1979 when HUD backed a $22 million mortgage to rehab the apartments. Butler then recruited a network of more than a dozen investors who used the apartments to gain tax credits. For example, one partnership provided $485,000 in cash in exchange for nearly $2 million in tax write-offs.

Still Butler struggled to maintain the properties, where most rent revenues came in the form of federal Section 8 subsidies.

In 1995, Butler got another shot in the arm–a $51 million state bond sale that was the largest rehab deal in the history of the Illinois Housing Development Authority. Politicians and investment bankers proclaimed the deal would help preserve affordable housing in Lawndale for decades.

“I knew [the $51 million] was not enough money to do what was needed,” Butler said. “But I knew it was better than not getting anything at all.”

Only about one-third of the money actually went to building repairs, according to state records reviewed by the Tribune. Some $14.7 million went to cover attorneys, accountants, underwriters, reserves and other closing costs. The rest paid off previous debt on the buildings.

The state bond sale also fueled an investment by ChevronTexaco. The oil company received $27 million in government-authorized tax write-offs in exchange for $20.6 million in cash.

About $9.5 million of the cash the oil company invested went to a real estate company Butler owns “as a fee for its services and reimbursement of expenses,” according to state records. Butler and his accountant said he poured most of that money back into the apartments and senior housing developments in Lawndale.

An additional $5.9 million of the ChevronTexaco funds bought out previous tax shelter investors in the apartments.

Despite more than $10 million in annual federal rent payments, Lawndale Restoration showed a loss last year of $1.75 million before depreciation, according to financial statements.

But various people have made considerable sums from the buildings.

For example, a company called Tactical Security has been paid $2.75 million in the last four years to provide roving guards for the apartments. The company is owned by Tom Chandler, brother of Lawndale Ald. Michael Chandler (24th).

Another businessman, Inverness insurance broker Ralph Aulenta, got money for nothing. He admitted in a criminal trial earlier this year to bilking the Lawndale apartments out of $1.7 million by inflating insurance premiums for more than a decade. Butler is suing to retrieve the funds. Aulenta is serving a 20-month prison sentence for an unrelated insurance scam in Rosemont.

Butler-controlled corporations have also received between $300,000 and $650,000 in annual fees to manage the apartments in recent years, according to state records. And Butler, who lives downtown, gets a $50,000 annual salary from his Lawndale community group.

He has spent more than $100,000 on political contributions in recent years to candidates ranging from U.S. Sen.-elect Barack Obama to longtime congressmen Bobby Rush and Danny Davis, Mayor Richard M. Daley and former Republican Gov. George Ryan. He said he gives as much as $70,000 a year to charity.

Butler estimated his net worth at $3 million.

“As hard as I worked for 30 years, I can’t believe you’d say that’s wealthy,” he said. “The vast majority of money I’ve earned has been reinvested in projects in this community.”

. . .

Among those projects is a gated community called Albany Park Townhouses at Albany and Ogden Avenues, just a few blocks from the despair of Lawndale Restoration.

Chicago Public Schools Board President Michael Scott is Butler’s partner in the development, where condos fetch more than $300,000. Owners have front-window views of the drooping willows and winding paths of Douglas Park. In the rear, frosted block glass windows let in plenty of light but obscure the view of North Lawndale’s decay.

Butler said it is government bureaucrats who have turned their backs on the neighborhood. He said HUD officials have declined for 18 months his urgent requests for a refinancing. He said it would be a “tragedy” if each unit didn’t receive about $60,000 for a gut rehab.

. . .

HUD has assumed responsibility for Butler’s mortgage. The fate of the buildings is likely to remain uncertain for at least several months.

CORRECTION:

Additional material published Jan. 30, 2005:

CORRECTIONS AND CLARIFICATIONS.

The Nov. 21, 2004, article headlined “Poor live in housing nightmare while investors reap benefits” may have given the impression that Cecil C. Butler is sole owner of 1,200 apartments in Lawndale. In fact, the legal owner of the apartments is the Lawndale Restoration Limited Partnership. Butler is the president of the general partner responsible for the management of the partnership’s affairs. Butler has served as signatory for partnerships, management agreements and financings for the apartments dating to the 1970s.

The article incorrectly said that Butler departed as president of Community Bank of Lawndale in 1985 amid bookkeeping problems. Butler left to avoid conflict of interest questions from regulators after the bank issued loans to Lawndale Restoration Properties.

The article was imprecise when it stated that investors “leveraged” the Lawndale apartments to buy Gold Coast condominiums. No debt was incurred on the Lawndale apartments to complete the Gold Coast purchase. Investors exchanged tax benefits from the Lawndale apartments to the Gold Coast condos.

Also, a headline in the article incorrectly stated that $150 million in federal funds was meant to repair the apartments. In fact, the funds were mostly rent payments meant to cover mortgage payments, operating costs and routine maintenance. Other federally insured loan funds were used for repairs.

Cecil Butler said he was overwhelmed with trying to rebuild an area in ruins.

Carol Matthews says she and her family have gone without electricity in most of their apartment for six nights. Calls to the maintenance office didn’t help, she says.

Jacquera Harris, 3, daughter of West Side resident Tonia Harris, drinks from a bathroom sink that has become detached from the wall of their apartment. Upset over the condition of their units, dozens of tenants who live in buildings managed by Cecil Butler have called for his ouster.

Lawndale buildings in disrepair
In 1995, the Illinois Housing Development Authority sold a record $51 million in bonds to fix low-income apartments in the North Lawndale area. Less than one-third of the funds actually went to repair the buildings. Nine years later, the bond mortgage is in default, and 1,200 apartments that the money was meant to save are filled with hundreds of code violations.

CECIL BUTLER’S PROPERTIES

CODE VIOLATIONS
Building inspection records for 93 parcels managed by Cecil Butler show more than 1,800 code violations, including roach and rat infestation and electrical problems. The federal government likely will foreclose and sell the buildings at auction.

SNAPSHOT OF VIOLATIONS ON DOUGLAS BOULEVARD
Many of the Butler-managed buildings clustered along Douglas Boulevard had at least 20 code violations.

WHERE THE FUNDS CAME FROM
Bond proceeds: $51 million
Equity/down payment: $5 million

WHERE THE FUNDS WENT
Apartment rehabilitation: $16 million
Payoff of past debt: $25 million
Financing costs: $15 million*
*Includes closing costs, broker fees and reserves

3118 DOUGLAS BLVD.
In September, city inspectors found 44 code violations at this address, among the largest number of violations in all of Butler’s buildings. A sampling:
- Broken windows and torn or missing screens
- Broken hardware on front interior door
- Front hall ceilings and walls damaged
- Roach and rat infestation
- Rotted or missing tiles on floors
- Bad odor in vestibule and stairwell
Sources: Illinois Department of Housing and Development, City of Chicago, ESRI, GDT
Chicago Tribune / Haeyoun Park and Chris Soprych

(Chicago Tribune 11/21/04)