2005 Rezbama real estate deal outside "the box" (Updated)

ESPN's Bob Davie's Football 101: In the Box "7-man protection" used by Nebraska to defend Miami "early in the 2002 Rose Bowl."

Full Disclosure: RW possesses ZERO knowledge about how football plays are run. Please forward all queries on that topic to the NFL.

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Why the football diagram? After reading the following take on the 2005 simultaneous real estate transaction carried out by Sen. Barack Obama (D-Ill.), for his townhouse, and Rita Rezko, wife of convicted felon and Obama's personal real estate fairy Antoin "Tony" Rezko, who purchased the adjoining undeveloped lot, the image of a chalkboard showing neatly lined up football players with one or two men outside "the box" looking to make some kind of unexpected play immediately sprang to mind. Let's see if you agree.

On Saturday, June 14, 2008, RezkoWatcher KL found the "valuations of the various bits of the house property" to be "very strange":

If I have the facts right, the house was originally listed at $1.95 million, and the lot for some other figure. I vaguely recall that the two combined would have cost Obama $2.25 or $2.35 million.

Then Obama ended up allegedly bargaining for a price reduction to $1.65 million (also reported as $1.6 million) while Rezko's wife allegedly participated in a bidding war that lifted the original listing price for the lot from $X (approx. $400,000?) to $625,000. Thus the sellers just so happened to end up getting significantly less for the house—but more for the lot. This meant that they got more or less the same gross proceeds for both pieces of property combined; approx. $2.275 million for both pieces of property—just $75,000 less than the original combined price. (If I am looking at the correct figures.)

From the outside, the various coincidences that make up this sequence of events look a lot like Rezko agreed to absorb part of the overall purchase price of the house part of the deal by paying a premium for the lot to offset the reduction to Obama. While the legal and financial valuation of specific pieces of real estate is a very discretionary business (I know about litigating valuations), this shift of purchase price from Obama to Rezko seems pretty blatant to me. And given the political context of their relationship, it seems illegal.

The story is that Rezko recognized a great development/investment opportunity when he saw one, and jumped at it, but the rest of the story really contradicts that explanation:

The valuation aspects of the 10-foot strip of land transferred to Obama [in January 2006] does not make the commercial sense that Obama has tried to imbue it with. For just another $104,500 (or $104,000?), Obama got the most important functional benefit of the entire lot, even though on paper he does not own the whole lot:

He gets some additional space, and, apart from an unobtrusive wrought iron fence marking the new property line, he keeps the view. (A very nice view. And I'll bet that the current equitable owners would be willing to rent him the use of that extra land for special occasions like birthday parties etc., maybe even let him park a car on the back of it.)

From a financial perspective, he got everything except the right to call 5/6ths of that lot his own—all for the great price of $1.65 million + $104,500 = $1.7545 million. Quite a discount from the original $2.25 or $2.35 million he would have had to pay for the whole thing.

The details of this valuation of that 1/6th strip are also strange.

Mechanically cutting Rezko's wife's purchase price of $625,000 into 6 bits is not consistent with established valuation principles. Five-sixths of that lot is worth much less than 100% of it, because 5/6ths of it is probably too small to get a building permit for much of anything. In addition, if this is a heritage district and not just a heritage house, the nature of what can be built could very well be constrained—which will also tend to push its value down.

Finally, if there is any difference between 1/6th of what Rezko's wife paid for the lot and the presumed value of $625,000 that was used to calculate the 1/6th price Obama paid for it, there is probably some strange sort of profit to Rezko in that part of the deal. (Enough so that he would be sure to say 'nothing happened' to [U.S. Attorney Patrick Fitzgerald]?)

But at the end of the day, it looks very much to me like what has really happened is that Rezko cut a deal in which he/his wife incurred a big chunk of the original listing price for the house, made it look like Obama was paying a fair price for that 10-foot strip, but really de facto gave Obama the privacy and aesthetic value of the rest of the vacant lot and the economic value of the expanded land base (10 feet) for the house. Rezko's wife really got nothing from this, because the other 5/6ths of the land may be, when valued in 2005 terms, worth less than 5/6ths of the $625,000 used to calculate the $104,500 price Obama paid for it.

Thus Rezko absorbed nearly $500,000 of the purchase price of Obama's house + lot by shifting a significant chunk of the listing price to the price Rezko paid for the land, and by then effectively giving Obama the value of the land at the amazing under-valuation of $104,500. Obama got the functional value of a $2.35 million house for $1.7545 million. Rezko paid net $400,000 (?) for 5/6ths of a lot that may now have little-to-no development value.

This was, as stated up front, a well-lined up play by both Tony Rezko and Sen. Obama, plus a clever game-winning move outside "the box".

What we really want to know now, which has already been asked a number of times, is when was this scheme hatched and whose idea was it?

More importantly, if RezkoWatcher KL could figure this out, where have all the brilliant investigative journalists and political opposition researchers been that they missed this?

KL also said "it would be interesting to see the terms upon which the law firm that took title to the 5/6ths is now holding it. Is the plan perhaps that Obama will eventually be able to buy it from Rezko's wife/Rezko's law firm/Obama's former employer?"

Tony Rezko's real estate attorney, Michael Sreenan, who purchased the 5/6 remainder of the lot from Rita Rezko in December 2006, in turn sold it in March 2008 to John D. and Marjorie S. Poulos. The property had a declared value of $675,000 even though the property had been offered at $1,495,000 and was reduced to $995,000, allegedly because the original intent for its development had changed.

And, since the sale of the lot was discovered by RW on April 11, 2008, the same questions remain unanswered:

Where are the adjustments to the property records for (1) when the 10-foot strip of land was removed from Rita Rezko's corner lot (parcel 035 in property records) and (2) added to the Obama townhouse parcel (034 in property records)? Cook County property records show no adjustments.

Who are the new owners—John and Marjorie Poulos—and what are their plans for the unimproved corner lot?

Why, if Sen. Obama was going to have new neighbors, of which he must have been aware at the time of his March 14, 2008, Chicago newspaper interviews, did he not bother to mention it? Especially when the real estate transaction would have ended the issue of the Rezkos (via proxy owner Michael Sreenan) and the Obamas sharing adjacent properties?

Why has there been no mention in mainstream media about the sale of the corner lot? Surely this is news?

Most importantly, will the Chicago newspapers now bother to find out—and report—the identity of Obama's new lot mates?

Update: RezkoWatcher TypewriterStreaming found the following published in the May 4, 2008, Chicago Sun-Times. Note that it was published after RW's April 11, 2008, article and repeats the same basic information, although it does identify Mr. Poulos as a lawyer. In earlier emails to RW he had been identified as a realtor.

"Barack Obama has new neighbors-to-be -- John and Marjorie Poulos.

The Pouloses bought the lot next door to Obama's much-talked-about Kenwood mansion last month.

Sale price: $675,000 -- far below the $1.5 million Michael Sreenan was asking when he put it on the market last fall. Sreenan, who was a lawyer for indicted former Obama fund-raiser Tony Rezko, bought the land from Rezko's wife, Rita, in December 2006 for $575,000.

"We have not met the senator,'' says John Poulos, a lawyer who already lives in the neighborhood.

He says he and his wife, a grad student at the University of Chicago, plan to build a single-family home on the land. They're looking for a contractor."