Blogger The Bear at The Absurd Report dubbed indicted political fixer Antoin "Tony" Rezko as the "'Magical Fairy of Real Estate Deals' for Illinois politicians" in November 2006. In a March 5, 2008, appearance with CNN's conservative talk show host Glenn Beck, Chicago Tribune columnist John Kass called Rezko Barack Obama's personal real-estate fairy. Was he?
The 2005 controversial tandem real estate transactions by Rezko's wife, Rita Rezko, and Illinois' newly minted Democratic U.S. Senator, Barack Obama, appear to have been magically plucked from thin air.
An April 19, 2008, Chicago Tribune article about Sen. Obama's income and debt in the 1990s raises some new questions about that, as well as an earlier real estate transaction by the Obamas.
The Tribune reporters wrote that "during much of the 1990s", the Obamas were "young lawyers" and "pursued non-profit or public service". Both of the Obamas graduated from Harvard Law School, Michelle Robinson in 1988 and Barack Obama in 1991, "around the time when the school's dean estimated the cost of a Harvard law degree at $62,200," they wrote.
Tony Rezko, according to articles published in the Chicago Tribune, the New York Times, and the Chicago Sun-Times, first reached out to Barack Obama in 1990 and tried to hire him to "work his low-income housing developments", when he was yet president of Harvard Law Review. Obama declined the unsolicited job offer.
Summer 1991, Michelle Robinson, who had been working for the Sidley Austin law firm, interviewed with Valerie Jarrett who was then deputy chief of staff for Mayor Richard Daley. Then Michelle's fiance, Barack Obama went along with her to the dinner meetup with Jarrett prior to Michelle's accepting a job offer to work at city hall. (See RezkoWatch article for more details.) Jarrett reported Michelle as saying "My fiance wants to know who is going to be looking out for me and making sure that I thrive."
The Chicago Tribune reported April 22, 2007 "That was the start of a long relationship that has paid off politically for Barack Obama, connecting him to Daley's inner circle." Michelle Robinson was centrally positioned at the heart of Chicago politics.
Jarrett left City Hall to lead the Chicago Transit Authority and recruited Michelle Obama to "the transit agency's citizen advisory committee" [Daley's chief of staff David Mosena], who now is president of the Museum of Science and Industry, served with [Michelle] Obama on the Commission on Chicago Landmarks. ...
City Hall records show Michelle Obama, then still named Robinson, began work as a $60,000-a-year mayoral assistant in September of 1991. She didn't stay long in the mayor's office. Within weeks, Daley promoted Jarrett to run the new Department of Planning and Development. Obama followed.
She had no background in economic development, but Obama served as a troubleshooter for Jarrett.
After only 18 months at the city, she left to launch the Chicago chapter of Public Allies, a group that sought to build future community leaders by arranging apprenticeships for young adults with non-profit organizations. Barack Obama was on the founding board of Public Allies, and it was he who recommended his new wife for the job as the Chicago chapter's first executive director, recalled Paul Schmitz, the current president of the group, which is now headquartered in Milwaukee and has chapters in many cities.
It seems that 1993 was a pivotal year for the Obamas. Michelle Obama became executive director of Public Allies. Barack Obama joined the small law firm of Allison S. Davis—Davis Miner Barnhill & Galland—"which specialized in helping developers build housing for the poor. Five of those deals included Rezko's company, Rezmar Corp." The Obamas "bought a condominium in Hyde Park for $277,500, paying about $111,000 as a down payment, according to county real estate records," the Chicago Tribune reported. Note: Cook County property records report the date of purchase as July 28, 1993.
Until now, the sole focus has been on the 2005 purchase of the Obamas' Kenwood/Hyde Park townhouse. The financial sketch provided in the April 19, 2008, Chicago Tribune article raises the question as to how it was that the admittedly deeply indebted Obamas, neither of which held high-paying jobs, managed a $111,000 downpayment on a $277,500 Hyde Park condo, particularly since Sen. Obama "once said he was so broke when he arrived in Los Angeles for the Democratic National Convention in 2000 that his credit card was rejected when he tried to rent a car." The Obamas were clearly not people of means by 2000.
Is it possible that Tony Rezko has been the Obamas' personal "real estate fairy" on more than one occasion? RezkoWatch was told in a March 2008 telephone conversation with Chicago realtor Donna Marie Schwan, who was involved in the 2005 real estate transaction, that, in the past, Rezko had some really good condo deals. Though not a confirmation by any means of facts not in evidence, the comment does suggest the possibility that Rezko was involved in another sweet real estate deal for the Obamas.
This leads back to the simultaneous real estate purchases of the Obamas' townhouse and Rita Rezko's unimproved adjacent lot and the question of the $330,000 downpayment made by the Obamas towards the $1.65 million purchase price.
In 1995, Barack Obama began campaigning for Illinois Senate and Michelle Obama's former boss, Valerie Jarrett became his campaign finance chairman, working with Tony and Rita Rezko and Allison S. Davis, Barack Obama's former law firm boss. Bill Daley, the mayor's brother, became an advisor and Mayor Daley's chief image defender, David Axelrod, was Obama's top campaign strategist. On July 31, 1995, Rezko made his first of many contributions to Obama's campaign—$1,000 from Rezko Foods.
In 1996, when Michelle Obama left Public Allies for a position at the University of Chicago, Barack Obama was beginning an eight-year run in the Illinois State Senate. In 2000, he ran unsuccessfully for the U.S. House of Representatives, his campaign aided by Rezko's fundraising efforts.
It is at this point, late in the summer of 2000, that Barack Obama claims that he was so broke that his credit card was rejected. In the five tax years prior to making an offer on the Hyde Park townhouse, in 2000, the Obamas joint gross income was $240,505; in 2001, $272,759; in 2002, $259,294; in 2003, $238,327; and in 2004, $207,647.
The agreed upon selling price of $1.65 million for the Kenwood townhouse, the third offer, was accepted by the sellers, Fredric Wondisford and Sally Radovick, on January 23, 2005. The Obamas made a $330,000 downpayment, which, according to newspaper accounts, accompanied a signed contract in January 2005. A simple mortgage calculation of principal plus interest only—based on the purchase price less downpayment—at 7% interest for 30 years, results in a monthly payment of approximately $8,782 per month or $105,384 per annum.
Although the property tax amount for 2005 is not known, as it was not reported on that year's income tax return, the amount for 2006 is—$16,181—adding approximately $1,348 more per month. The cost of property insurance does not appear in public records.
Based on the Obamas' total five-year income of $1,218,532, and average annual income of $243,706 for 2000 through 2004, the $105,384 mortgage payments plus the $16,181 in property taxes, would account for 49.4 percent of the Obamas' gross annual income.
The following year, in 2005, the Obamas' gross income was $1,655,106, an amount more in line with the mortgage. However, lenders don't determine whether a borrower gets a housing loan based on speculative or anticipated future income.
The public record cannot provide us with the additional information the Obamas would have been required to provide in order to qualify for a loan. How much money was in savings? How much money was in a retirement account? How much credit card debt did they have? How about car loans? Health insurance? Student loan debt?
Did the Obamas qualify for a conventional mortgage? In calculating their debt-to-income ratio, was the "front ratio" (principal, interest, insurance, taxes divided by gross monthly income) higher than the standard 28 percent to be eligible for a conventional mortgage? If over 28 percent, did they qualify for a standard "back ratio" (all monthly debt, including mortgage, etc., divided by gross monthly salary), which is 36 percent?
The answer, as can be seen, is no on both counts. The fact is that the estimated "front ratio" is 49.4 percent. Although the "back ratio" cannot be calculated, it clearly would exceed any prudent lender's guidelines for a conventional mortgage.
Therefore, we come to the essential, yet unanswered questions. Where did the Obamas find the $330,000 downpayment? Who guaranteed the $1.32 million mortgage? What lender would entertain such a large housing loan to a prospective buyer whose five-year income history could not support such a large monthly or annual payment?
For whatever reason, the media has been reluctant to address these very basic and obvious questions. If the Obamas' income tax returns do not support that they had the necessary funds to buy the house, from where, then, did the $330,000 downpayment come? Are we to believe that in 2000 Barack Obama's credit card was rejected, based on a gross income of $240,505 that year, and that between 2000 and the end of 2004, the Obamas made in excess of $1.2 million, out of which they saved $330,000 for a downpayment on their Kenwood townhouse?
Additionally, the Obamas' income tax reports do not reflect dividend income derived from stocks or bonds. Although they did sell their condo until April 29, 2005, (deed recorded May 12, 2005) according to Cook County records, for $415,000, when they made their offer and signed their contract in January 2005, the condo sale was not assured. Although taken into account as an asset, it did not constitute the necessary cash-in-hand $330,000 downpayment. There are no reports that they had any other property to sell.
Although Sen. Obama anticipated royalties from his books, those were not available to him in January 2005 when he made his offer on the $1.65 million townhouse. They were also not available to him earlier, in December 2004, when Michelle Obama was house hunting. It was reported March 7, 2008, by James Bone of the The Times (UK) that
The Illinois senator's own financial disclosures suggest, however, that he was prospering at the time. He reported that in addition to his Senate salary he earned $378,239 in book royalties from Dystel & Goodrich and an $847,167 book advance from Random House in 2005. [A December 17, 2004, press release announced the multi-faceted book deal.]
"With the permission of the Ethics Committee in January 2005, a $1.9million advance against royalties was agreed to by the senator and Random House for writing 2 non-fiction books and 1 children's book ($200,000 of which is to be donated to charity)," he wrote. "In addition, with the permission of the Ethics Committee, a $370,000 advance against royalties ($40,000 of which had already been previously paid pursuant to the original publishing agreement) was agreed to for work published in 1994."
All factors taken into consideration, this is simply not a credible scenario.
It is worth asking, therefore, whether Tony Rezko may have served as the Obamas' personal "real estate fairy". Rezko's reputation as a neighborhood developer is fertile with possibilities when looking at the surprising ability for the taxed Obamas to produce $111,000 and $330,000 downpayments from no sizeable asset base.
It is also worth asking how the Obamas managed to obtain a $1.32 million loan based on a highly unfavorable debt-to-income ratio and an average gross annual income of $243,706 for 2000 through 2004. How could a mortgage lender divine that the Obamas' income would increase to $1,655,106 in 2005, drop by 40 percent to $983,826 in 2006, and then accelerate in 2007—based on the Senator's pursuit of the presidency—to a whopping $4.2 million due to book sales?
Did Tony Rezko wave his wand and make the downpayments and extremely sweet real estate deals magically appear?
Updates:
Interestingly, nearly eighteen months after signing the book contract, the Associated Press reported the following on June 14, 2006, begging the question as to when the Ethics Committee did meet.
"Sen. Barack Obama, D-Ill., reported royalties and a book advance. He revealed that with permission of the Senate Ethics Committee, he agreed with Random House to a $1.9 million advance against royalties for writing two nonfiction books and one children's book. He intends to donate $200,000 to charity."
A March 8, 2007, article published by the Chicago Tribune, Obama said he signed the $1.9 million book deal in December 2004 and that the "bulk of his advance went toward purchase of a new home in Hyde Park." $330,000 would hardly be considered the "bulk" of $1.9 million. In February 2005 he reportedly set up a trust for the rest of the money.
[In November 2004] Mr. Obama sailed to victory. By the end of the campaign, his aides were sending workers into Iowa, the first Presidential caucus state, to begin developing contacts among Democrats there, according to Al Kindle, an Obama campaign aid at the time.
A few months later, Sen. Obama entered into a real-estate deal that would later come to haunt him. He and his wife bought a mansion in Hyde Park for $1.65 million, $300,000 below the asking price. The wife of a longtime friend and donor, real-estate developer Tony Rezko, paid full price for an adjacent lot that was listed at the same time by the seller. Six months later, the Rezkos sold Mr. Obama a strip of their land so he could have a bigger yard. At the time, newspapers were reporting that Mr. Rezko was under investigation for corruption and influence peddling involving the Illinois governor's office. He was subsequently indicted and is currently standing trial.
Sen. Obama, who hasn't been named in connection with that case, has since called his decision "boneheaded" because it gave the impression Mr. Rezko was trying to curry favor. Mr. Axelrod says Sen. Obama never discussed the house purchase with his political team. If he had, Mr. Axelrod says, they would have told him not to do it.
"Sen. Barack Obama (D-Ill.) reported ethics committee approval of a $370,000 advance against royalties from his 1995 book 'Dreams From My Father,' which became a bestseller as his political star rose."—The Hill, June 15, 2007.
Once again, where can a report be found by the Senate Ethics Committee or in the media about approval for that 2005 book advance?
Unfortunately for the Obamas, scrutinizing the book advances he received for his first book raises more questions.
The NY Times reports that Obama's first agent (the one he dumped when he became a big name) forgave him for missing his first deadline at Poseidon Press (then a small imprint of Simon Schuster) and wrangled him a second contract with a $40,000 advance. Obama then had free writing space, according to the Times article, and also a small fellowship--but even with all this, he went off to Bali for a while to complete the book.
Given that he wasn't working at the time, Obama presumably used the $40,000 to cover the couple's living expenses--indeed, many reviews of his second book mention this "modest advance".
But the Times article glosses quickly over an aspect of the story that Peter Osnos, who was then publisher of Times Books at Random House, filled in two years ago, before anyone was paying attention.
A book proposal by Obama about his life was submitted to publishers and a deal was reached with Poseidon, a small imprint of Simon & Schuster, for what is known in the industry as “six figures” (about $125,000, I am told). Several years passed and Obama was too busy finishing law school and embarking on his career to get the book done. Simon & Schuster canceled the contract, which probably meant that Obama had to pay back at least some of what he had received of the advance.
So the "modest advance" was preceded by an extremely generous advance, but Obama didn't honor that first contract. While presumably (says Osnos) Obama had to return at least some of the advance, the Times leaves the first advance completely unmentioned. Thus, Obama took a six-figure advance, around $125,000, while still in law school, and didn't deliver a book. What did he do with the money? When did he return it, and how much?
Is it possible that Obama used the first advance to fund his condo? If not, where did he get the money for the down payment?
Senator Obama should disclose how much of the first advance he paid back, and when. Given his questionable ties to shady financial deals, he should reveal the source of the $110,000 that the Obamas used for the down payment on their first condominium.
