A newly formed charity came to Chicago pitching state officials on its “model” way to provide low-income housing. The Ohio-based Better Housing Foundation said it would provide safe apartments. It would help tenants get jobs and health care. And it wouldn’t evict “solely on the basis that the tenant is unable to pay their rent.” Starting in early 2016, with little scrutiny, a pair of state agencies helped the nonprofit borrow tens of millions of dollars at lower interest rates and obtain hundreds of thousands of dollars in property tax breaks that allowed it to rapidly buy dozens of buildings across the South Side. But a Tribune investigation has found that many residents have been left to live in deteriorating buildings. The nonprofit hasn’t provided social services there. And the charity regularly has sued to evict those behind on rent. Meanwhile, a real estate manager, lawyers and others have been collectively paid millions of dollars in fees. The effects can be seen at one of the nonprofit’s biggest buildings, a modernist high-rise just a couple of blocks from the South Shore Cultural Center. City inspectors and tenants documented pervasive rainwater leaks that led to mold, as well as frequent elevator breakdowns that stranded disabled residents. Residents frequently told the city that the landlord ignored problems. Among them was Raquel McClendon, who called 311 to tell the city that little was done to clean up the mess from a water leak. She told the Tribune it left her and her 11-year-old to slosh through stagnating water for days. Echoing 18 other current and former tenants interviewed for this story, McClendon said she wasn’t told anything about the building being owned by a charity that pledged to help them. “I just don’t trust them anymore,” said McClendon, who moved out in May. “They’re not doing anything to show any type of compassion for anyone. Did they show compassion for me when we were four days floating in water?”

Water stains linger on the bottom of two doors in Raquel McClendon’s South Shore apartment following what she said was four days of standing water after a pipe leaked above her unit this spring. (Jose M. Osorio/Chicago Tribune) Image p2p slug: ct-met-better-housing-woes-0601-11 Raquel McClendon told the Tribune she and her 11-year-old daughter sloshed through stagnating water for days following the pipe leak. She said the property manager did little to quickly fix the problem, and she moved out in May. (Jose M. Osorio/Chicago Tribune) Image p2p slug: ct-met-better-housing-woes-0601-7

Records show that conditions became so bad that the Chicago Housing Authority has forbidden its aid recipients from moving into 64 of the 81 Better Housing Foundation-owned buildings in the city, including the high-rise at 7250 S. South Shore Drive. In addition, the Tribune found that as the state helped arrange $84.4 million in loans for the buildings, it missed red flags about the nonprofit’s credentials and didn’t check whether the nonprofit lived up to its charitable promises. The Illinois Finance Authority and Illinois Department of Revenue both said it wasn’t their job to monitor how well the nonprofit cared for the buildings or treated tenants. They either trusted others to do the job or the nonprofit to self-report problems. Still, after the Tribune raised questions, the revenue department took away the tax breaks last month. Soon after, the Better Housing Foundation’s board voted to pursue transferring all of its buildings to a more established Florida nonprofit that helps homeless veterans find housing. Amid the fallout, the two people who spearheaded the Chicago effort said they had the best of intentions, although they disagreed on what precisely went wrong and who’s to blame. Ohio attorney Meredith Rosenbeck said she began the Better Housing Foundation in 2015 to work with Chicago lawyer and real estate investor L. Mark DeAngelis, whose firms picked and managed the charity’s South Side buildings. Records show Rosenbeck’s law firm was paid nearly $200,000 to help arrange five loan deals with the state, while a firm run by DeAngelis was paid $4.6 million in consulting fees and reimbursements on three of the deals. Rosenbeck blamed DeAngelis for many of the problems that ensued. DeAngelis said he inherited dilapidated buildings and his staff did the best it could to promptly fix problems while treating tenants fairly. “We sincerely felt we could help make a positive impact on the affordable housing crisis,” DeAngelis wrote in one email, “and to be painted in this negative way is incomprehensibly depressing.” That crisis, advocates say, is all too real. But the Tribune investigation shows what went wrong when state officials helped fuel a venture based on lofty promises but then did little to monitor what happened to the people who supposedly would be helped. That includes those living in the South Shore high-rise. Help support quality journalism that makes an impact Subscribe

One building, many complaints A fourth of all code violations against Better Housing Foundation’s Chicago buildings came at one complex: 7250 S. South Shore Dr. From a leaking roof to an elevator prone to breaking down, tenants in the building reported – and city inspectors found – many problems, according to complaints to 311, city inspection records and tenant interviews. Scroll to explore this building Explore this building More than a third of the units, 10 of 28, had reports of leaks or water damage. Apartment 202 ... ... Apartment 203 ... City of Chicago Image p2p slug: ct-better-housing-7250-water-damage-photos-203-001 ... Apartment 301 ... City of Chicago Image p2p slug: ct-better-housing-7250-water-damage-photos-301-001 ... Apartment 701 ... City of Chicago Image p2p slug: ct-better-housing-7250-water-damage-photos-701-001 ... Apartment 901 ... City of Chicago Image p2p slug: ct-better-housing-7250-water-damage-photos-901-001 ... Apartment 1001. City of Chicago Image p2p slug: ct-better-housing-7250-water-damage-photos-1001-001 Inspectors found rainwater seeping through cracks and gaps around bricks, frames and AC units on exterior walls as well as a leaky roof. "Black material/substance" was found in basement laundry room, and tenants complained vagrants slept there and used the area as a bathroom. The boiler went out numerous times, knocking out heat and hot water. The basement had dangerous structural conditions. The building entrance's front door didn’t lock for months. The elevator failed 10 city inspections in two years. Two units were deemed dangerous, hazardous and unlivable by inspectors because of “severe black material” from water damage. Three units failed CHA inspections, and the agency threatened to stop payments. The nonprofit pledged to help tenants avoid eviction. Records show four evictions filed over two years.

Warning signs missed In Chicago, the debate over affordable housing typically centers on gentrifying areas. The city pushes developers to either pay extra fees or set aside units that charge lower rent, although a recent Tribune investigation found fewer affordable units were being built than projected. The Better Housing Foundation offered a different path to house low-income residents. Instead of building new high-rises, it sought to buy older buildings already charging low rent in low-income areas. The foundation said its charitable mission was keeping the housing affordable. That allowed it to target the lucrative vein of tax-exempt, low-interest municipal bond financing. The deals are a boon for borrowers. That’s because investors buying the bonds charge lower interest rates, in exchange for the IRS providing the investors a break on income tax they’d normally pay on their earnings from such deals. Like with any tax break, other taxpayers have to pick up the slack for the lost revenue. Taxpayers, however, aren’t on the hook to pay back the loan if the borrower doesn’t. Congress allows the deals to be OK’d by any of a number of special government agencies able to act as a conduit, including the Illinois Finance Authority. Records show Rosenbeck and DeAngelis approached the agency in February 2016 with a deal packaged for quick approval. The IRS already had granted charitable status to the foundation she started. DeAngelis had lined up South Side properties to buy and locked down sales prices. A financial services firm was ready to sell the municipal bonds to investors. Lawyers were ready to review the legality of the deal. To the finance authority, there was another key: Prominent ratings agency Standard & Poor’s was looking at the deal to ensure it was a safe enough bet that those buying bonds would be paid back. The authority’s board voted 9-0 in April 2016 to allow the nonprofit to borrow what would end up being nearly $14 million. In an interview, the agency’s executive director recalled the thinking at the time. “This is a borrower with an investment-grade rating, with a credible team of professionals,” Chris Meister said. But a deeper look could have raised questions about some of those tied to the deal: The president who didn’t lead: In its application to the finance authority, the nonprofit touted a three-member oversight board. The nonprofit cited the board’s “extensive experience,” which included serving on a board for a similar charity Rosenbeck had begun. The listed president of both boards was Jason Cook, a suburban Cleveland lawyer whom Rosenbeck described in government filings as helping oversee the “acquiring, rehabilitating and managing” of the units. But Cook told the Tribune he didn’t offer input — let alone make decisions — on the operation. He said he agreed to be listed as board president as a favor to Rosenbeck, the wife of a longtime friend. Cook said he mostly signed things at Rosenbeck’s request and let others handle the venture. “Since they all know this stuff in and out, it only makes sense they would be in charge of that, and make sure everything is going smoothly,” Cook said. “If they needed something from me, fine, but they didn’t. So they needed me to sign paperwork, and that’s what happened.” When asked about Cook’s characterization, Rosenbeck acknowledged the description of Cook’s role in government filings was an “overstatement.” A member who said she didn’t serve: Another listed board member was Tracy Hughey, whom Rosenbeck described as a former co-worker at a law firm. Hughey, however, told the Tribune she hadn’t heard of either board. She said her most recent connection to the Chicago area was attending a NASCAR race. Asked to respond, Rosenbeck maintained that Hughey did agree to serve but that “her involvement was passive.” Rosenbeck also said Hughey’s service was “intended to be temporary until a replacement was found.” Government filings by the nonprofit list Hughey as serving on one or more of the boards during a 32-month stretch from March 2015 through November 2017, through three of five deals the charity has done in Illinois. A charity that wasn’t properly registered: In addition to registering with the IRS, nonprofits typically must file business and charity papers in their home states. Ohio records show the Better Housing Foundation submitted incomplete charity registration for years despite repeated requests from authorities there. The registration is meant to safeguard potential donors. Help support quality journalism that makes an impact Subscribe Rosenbeck described the mix-up as minor and irrelevant. The foundation wasn’t asking the public for donations, according to its reports, which also showed the group did not have any staff or even a website. The bonds issued by the state were its source of cash. Meister, the finance authority’s executive director, said this week that he was “angry” and “disappointed” at what the Tribune found but defended the authority’s work. He said the agency spent hours on a “deeper dive” researching various aspects of what was a first-of-its-kind deal for the agency, and it also relied on reviews by S&P and outside lawyers involved in the deal, as well as the accuracy of submissions by the nonprofit. “We did do some research,” Meister said. “We did do some independent review.” The bond deal’s closing documents detail where the money went. The firm of DeAngelis, the real estate manager, was paid a consulting fee of $548,396, plus an additional $84,000 in reimbursements for upfront costs his firm had paid. DeAngelis and Rosenbeck said his firm’s fees were in line with industry standards. Other players in the deal were paid $621,627 under a category called “cost of issuance.” The biggest cut — a third — went to a financial services firm for helping arrange the loan. Other money went to a lawyer to represent the firm. And another lawyer to represent investors’ interests. And another firm hired to safeguard the money. And a lawyer representing that firm. And S&P, the Wall Street ratings firm. And Rosenbeck’s firm, as a lawyer for the nonprofit. And an attorney to represent the finance authority. The finance authority got $55,680 in fees. The agency’s budget comes from money collected from such deals, not taxpayers, meaning if it doesn’t close deals, it has less money. The agency said its own fee and its attorney’s fee were in line with what is typically charged, and that it doesn’t review amounts paid to others. Regarding the cost of issuance in such deals, the IRS typically limits them to 2 percent of the bond money raised. But records show this deal was structured in a way to allow the heftier fees, which equated to 4.9 percent. Rosenbeck said every fee, including hers, was supported by invoices and approved by others involved. As for the buildings themselves, closing documents show that of the nearly $14 million borrowed, just $100,000 was set aside to cover repairs in 16 older buildings mostly in South Shore but also to the west in Park Manor and as far south as West Pullman. They would soon need far more money than that. How the nonprofit got state help Ohio attorney Meredith Rosenbeck filed paperwork to start charity. Chicago lawyer and real estate investor L. Mark DeAngelis cut tentative deal to buy properties. The pair approached Illinois Finance Authority about loan deal. Charity would be owner while DeAngelis’ firms paid to consult and manage property. Lawyers, financiers and others craft loan deal that can be deemed a safe enough bet for investors. Finance authority OK’d deal, noted public good of maintaining affordable housing. Bonds – basically IOUs – sold to investors. Charity on hook to pay cash back. Most of the money goes to buy buildings. Other cash is paid out in fees to: - Rosenbeck’s firm - DeAngelis’ firm - Finance authority - Others crafting deal The pair approached Illinois Finance Authority about loan deal. Charity would be owner while DeAngelis’ firms paid to consult and manage property. Ohio attorney Meredith Rosenbeck filed paperwork to start charity. Lawyers, financiers and others craft loan deal that can be deemed a safe enough bet for investors. Chicago lawyer and real estate investor L. Mark DeAngelis cut tentative deal to buy properties. Finance authority OK’d deal, noted public good of maintaining affordable housing. Bonds – basically IOUs – sold to investors. Charity on hook to pay cash back. Most of the money goes to buy buildings. Other cash is paid out in fees. Rosenbeck’s firm DeAngelis’ firm Finance authority Others crafting deal Illinois Finance Authority and Ohio Association of Nonprofit Organizations photos.

(Kyle Bentle / Chicago Tribune) Conditions deteriorate, deals continue Soon after the Better Housing Foundation took ownership of the buildings in late July 2016, the 311 calls starting coming in. One caller reported junk accumulating outside an 18-unit complex about six blocks south of Jackson Park. About a mile west, a tenant complained that the two-story building had mold, mice, ants, spiders and a “bad smell” in the basement. Another tenant said the roof was leaking so badly that mold was forming and the ceiling had begun to collapse. A mile south, a four-story building was said to have not only rodents but leaking pipes, holes in the wall and a front entrance door that was broken. The 311 calls triggered city inspections, and building inspectors began to take notice, issuing citation after citation. The 16 buildings amassed 118 building citations through early March 2017. Housing advocates say citations are common in older buildings, but the Tribune found that the DeAngelis-managed buildings racked them up quickly. It took the buildings’ previous owner three years to amass the same number of code violations that the Better Housing Foundation amassed in just eight months. DeAngelis blamed his hand-picked private inspectors for missing at least $580,000 worth of needed repairs when they looked at the buildings in 2015. The nonprofit later filed a lawsuit that is pending against those inspectors, who denied wrongdoing. In emails to the Tribune, DeAngelis also cited winter weather for bursting pipes and repeatedly knocking out boilers that heated the buildings and water. As that first winter waned, the nonprofit and DeAngelis sought to quadruple its holdings. It asked the finance authority to help it get the cash to buy 48 more apartment buildings, which would spread its real estate empire into Washington Park, Englewood, Gresham and South Chicago. The mounting building citations didn’t come up when the finance authority’s board discussed a second deal, however. At an early March 2017 meeting, the discussion ended up in back-and-forth praise. “I don't have a question,” one board member told DeAngelis. “I would just like to compliment you for being a part of this. I think this is a great project and very proud that the finance authority can help out in this great effort.” DeAngelis, in turn, complimented the finance authority’s staff, while laying the groundwork for more deals: “We hope to probably add 1,000 to 1,500 units a year … (and) we’d love to do it with you guys.” Meister, the finance authority executive director, told the Tribune this week that the agency did not learn of problems at the buildings until being contacted by the Tribune this spring. He said he was “deeply troubled” and “gravely concerned” about the plight of tenants but said the agency doesn’t have regulatory power over building conditions. After that $52 million deal closed, DeAngelis’ firm was paid more than $3.3 million from bond proceeds — double what the state board had been told in a presentation, records show. Meister could not explain why the fees paid were twice as much, saying the agency’s role did not include reviewing amounts paid to consultants. Meister, DeAngelis and Rosenbeck said the fee amounts provided to the board before its vote were estimates subject to change. DeAngelis told the Tribune his firm “had approximately $750,000 of its own money at risk.” “No private consultant/developer, of which there are countless in these sorts of transactions across the nation, can afford to do this without the promise of strong returns,” he said. In November 2017, the nonprofit pushed a third deal, with a different property management firm for four suburban apartment complexes. By February 2018, the nonprofit asked the finance authority to approve a fourth deal. The Better Housing Foundation would buy 17 buildings managed by DeAngelis’ firm that would boost holdings to more than 950 Chicago units, expanding into Burnside, Brainerd and Beverly. Even as more properties were added to the nonprofit’s portfolio, tenant horror stories continued to mount. Latoya Gholar, who lived in a four-story brick building near 77th Street and Stony Island Avenue, said DeAngelis’ firm ignored her near-daily complaints about a mucky brown water leaking from her bathroom ceiling, resulting in mold that worsened her asthma. Gholar told the Tribune that for months, she had to hold an umbrella while she went to the bathroom. That was until the ceiling collapsed onto her head, sending her to the emergency room, according to a lawsuit she later filed. Records show a city code inspector issued a citation for the leak. Gholar moved out and said she got a small settlement from the landlord, but she said it wasn’t enough to afford a down payment for a new place and pay off medical bills. “(Those) people put me through hell,” she said with anger in her voice before she paused and offered an apologetic tone. “Forgive my language; they put me through it.” DeAngelis acknowledged that Gholar reported problems with her apartment that he attributed to a leaking tub in the unit above. He said both problems “were resolved” and the city’s code citation “immediately addressed.” He also said the fact that Gholar received a small settlement showed “she did not in fact suffer any significant harm.” And, more broadly, DeAngelis said, many of the buildings — even those with code violations — were still in “sound overall condition.” And he said his team did everything possible to quickly fix problems as they arose. Still, the Chicago Housing Authority wasn’t convinced. The agency slapped a rare sanction on the arms of the nonprofit that were the properties’ listed owners, citing failed inspections and problems that weren’t fixed quickly enough. The CHA banned its aid recipients from moving into more than three-fourths of the buildings — a sanction that affects just 1 percent of landlords in the program. DeAngelis said in an email that the process of dealing with the CHA is “burdensome” and called the agency’s application of federal housing standards “less than consistent.” So he decided to recruit tenants elsewhere. Building code problems also continued to increase. By February of this year — 19 months into the nonprofit’s stewardship — code violations topped 500. A fourth of them were at one building: the high-rise at 7250 S. South Shore, one of the nonprofit’s largest. In January alone, city inspectors slapped the 28-unit building with 48 citations. Felix Worthon, who lives on the sixth floor of the South Shore high-rise, says he's worried about the paint bubbling on his walls from leaks but that he can’t afford to move. (Jose M. Osorio/Chicago Tribune) Image p2p slug: ct-better-housing-woes-0601-999-20180810 Records show inspectors found rainwater leaking in from the roof, air conditioning sleeves, brick walls and windows. The leaks had caused “immense water damage.” Water had flowed into walls, bubbling paint, and had pushed downward, bulging an interior stairwell wall and weakening a concrete basement ceiling so much that chunks had fallen to the floor. The mold was so bad — inspectors described it as a “severe black material” — that tenants were moved out of at least two units. Inspectors documented a hole in the lobby ceiling. Some windows didn’t close right. Flooring was so badly installed that it shifted, with wide gaps. Some carpet was torn or dingy. Old doors, wood, garbage and other items had been piled in the basement. Tenants told the Tribune the front door was broken for months, allowing anyone to come in. They said vagrants slept in the hallways, and defecated and urinated in the basement laundry room and elevator. City inspectors also cited the 11-story building’s lone elevator for being out of code, the ninth time they had done so in less than two years. That doesn’t count other breakdowns documented in 311 complaints from tenants. Several told the Tribune they’d gotten used to climbing up and down the dimly lit concrete stairwells but worried about their disabled neighbors stuck in their units. Still, the conditions at that South Shore building, or the other buildings that were cited, did not come up at a February finance authority board meeting. The nonprofit’s plan to expand passed — its fourth deal with the state — without dissent. There was no discussion, according to a recording of the meeting. The $19 million deal formally closed a month later. Consulting fees and reimbursements to DeAngelis’ firm were nearly $650,000, according to closing documents.

More properties, more building code violations The Illinois Finance Authority helped arrange three loan deals for the Better Housing Foundation to buy buildings across the South Side in July 2016, May 2017 and March 2018. Records show the state helped the nonprofit expand its real estate empire even as the citations mounted against buildings the charity bought under previous deals. July 29, 2016 16 Violations buildings 100 10 None 63RD 79TH 95TH 90 94 57 May 18, 2017 64 buildings 211 violations March 7, 2018 81 buildings 550 violations Violations 100 10 None July 29, 2016 May 18, 2017 March 7, 2018 16 64 81 Violations buildings buildings buildings 100 550 211 10 violations violations None 63RD 79TH 90 95TH 94 57 July 29, 2016 March 7, 2018 May 18, 2017 16 64 81 Violations buildings buildings buildings 100 211 550 10 violations violations None 63RD 79TH 95TH 90 94 57 Source: Tribune analysis of City of Chicago housing code data, Illinois Finance Authority records and municipal bond market filings. (Kyle Bentle / Chicago Tribune)