Get in Line Michigan, Illinois and Florida – RSC & Associates is bankrupt – Surprise!

We started this blog in 2007 as a result of the poor construction of the 1120 Club in Oak Park, IL. Trapani construction and RSC & Associates are to blame for the non-delivery of a quality, well developed building. This story could have had a happy ending for all parties involved to include the investors of the 1120 club property. Unfortunately, it looks as though the “happy ending” will come in a different way for the condo unit owners at 1120.

For RSC & Associates?

Karma (Sanskrit: कर्म IPA: [ˈkərmə] ( listen);^[1] Pali: kamma) in Indian religions is the concept of “action” or “deed”, understood as that which causes the entire cycle of cause and effect (i.e., the cycle called saṃsāra) originating in ancient India and treated in Hindu, Jain, Buddhist and Sikh philosophies.^[2]

Chicago’s RSC & Associates goes Bankrupt – owes $5.9 million to 50 different parties

Downtown Oak Park developer goes bankrupt

1120 Club LLC has $5.9 million in unpaid debt, owed to 50 different parties

The developer of a high-profile condo building in downtown Oak Park recently filed for bankruptcy, faced with $5.9 million in unpaid bills.

Richard Curto built the 44-unit condo building at 1120 Lake St. in 2007. And since then, the project has been mired in controversy, including numerous lawsuits, one from the building’s condo association alleging shoddy construction.

Another chapter was written in the 1120 Club’s book last month, as Curto, on behalf of the limited liability corporation, filed for Chapter 7 bankruptcy, which usually results in liquidation of a developer’s assets. In the filing, Curto lists $5.9 million in debt, owed to about 50 different parties.

Those debts include a $1 million mortgage to buy the historic Dreschler building just east of the development, and a $1.7 million mortgage to buy five condos, four of which are currently being rented. Curto owes money to everyone from Trapani Construction ($1.2 million) to the Barnes & Thornburg law firm ($148,000), according to court documents.

The total amount of debt is likely to grow, as Curto plugged in several “unknowns” in the filing because of ongoing lawsuits and yet-to-be received tax bills.

Curto — who is the founder and chief of RSC &Associates, the management company for 1120 Club LLC — did not return phone calls and emails on Monday seeking comment.

RSC & Associates was faced with a series of lawsuits in the past four years, all related to the 1120 Club. Parties taking the Oak Park-based developer to court included the building’s condo association, village hall and an investor that almost bought the retail portion of the development.

The condo association complained of shoddy construction on the seventh floor, which caused sections of concrete to “warp or fail,” allowing water to flood into the building, according to the original complaint.

That lawsuit, first filed in May 2009, is yet to be settled, according to Mike Salvati, treasurer of the condo association. The suit is also against Trapani Construction and 1120 Retail LLC (a California investor that bought the retail space in the building), and is seeking $750,000.

The association was forced to take out a loan and levy a special assessment to condo owners in order to make repairs, which Salvati estimates could cost more than $1.5 million, and should be done by the end of the summer.

“If I have a wall that totally breaks down where I have water coming 2, 3 feet into my unit every time it rains, I have to do something about it,” he said. “Even though it might have been his (Curto’s) responsibility, in my opinion, we just couldn’t wait.”

Village hall also sued RSC & Associates in 2009 over poor construction, hoping to get the developer to fix issues with the property. Part of the project was built on village-owned land, so Oak Park entered into a legally binding redevelopment agreement in March 2004, requiring RSC to meet certain guidelines. Oak Park gave the property to RSC, and reimbursed the developer for demolition and remediation costs at the site.

That case, too, has yet to be settled. Village Attorney Ray Heise said Oak Park will continue pursuing the lawsuit, both in and out of bankruptcy court.

And Heise was expecting to testify this week in yet another lawsuit related to the 1120 Club. Brandenburg Family Associates sued RSC & Associates in August 2007. The California-based company had put down $1.5 million in earnest money, looking to buy the building’s retail space for $16.2 million. But the group backed out of the deal and never got its money back.

A different California investor, calling itself 1120 Retail LLC, ended up paying $15.8 million for the space, which is occupied by a fitness club, bar, bagel shop and plus-size women’s store. Salvati said an arbitrator ruled last month that the retail owner needs to pay some $240,000 in shared operating expenses that haven’t been paid in years.

Lawyer Catherine Steege has been appointed as “trustee” in the bankruptcy case. Steege said she’ll be charged with sorting through the developer’s assets, figuring out which ones can be turned into cash to help pay off the creditors.

Those assets include five condos in the 1120 Club, part of the Dreschler Building and 12 parking spaces. Curto also lists “counterclaims” in court against village hall, the construction company and the condo association as possible assets.

Steege said bankruptcy laws will determine which of the 50 or so creditors will be first in line to get paid when the assets are sold. A meeting of creditors is scheduled for June 26.

Village Trustee Ray Johnson was on the village board that first green-lighted an agreement with RSC in 2004. He said the developer seemed reputable at the time, having completed several other successful projects.

Johnson speculated that the economy was partly to blame with some of the 1120 Club’s issues. He thinks village hall should be stronger in its oversight in the future to avoid similar situations, and said the retail portion was successful.

“I acknowledge that there are issues, but it still has brought an awful lot of vitality to downtown,” he said.

Milwaukee Park East Commons project gets more time to seek financing

The owner of the only Park East parcel that Milwaukee County has so far been able to sell will again be granted more time to finance a proposed development.

The County Board’s Committee on Economic and Community Development on Monday unanimously recommended a six-month extension on the deadline for starting excavation work for Park East Commons apartments.

Developer Richard Curto will have until Sept. 30 to begin excavation work If that recommendation is approved by the full board at its March 17 meeting.

Curto told committee members that obtaining financing “has been more than challenging.” But his firm, RSC & Associates, is “not quitting,” he said.

Curto, in response to a question from committee Chairman Theo Lipscomb, said the lack of financing help from the City of Milwaukee has been “very disappointing.”

They cited the city financing provided for the Moderne apartment and condo high-rise, which is under construction at W. Juneau Ave. and N. Old World 3rd St. That $55 million project’s financing includes $9.3 million in city loans.

Said Lipscomb, “I see just a different level of assistance offered to other developers.”

Department of City Development spokesman Jeff Fleming said there are limits on the financial risks that city officials are willing to take when helping finance real estate projects.

“We can, and we do, work with developers on projects that make positive additions to the city,” Fleming said, in a statement

The 87-unit Park East Commons is planned for part of a 2-acre site, bordered by N. Milwaukee, N. Jefferson and E. Lyon streets and E. Ogden Ave., that RSC bought from Milwaukee County in December 2007 for $2,725,000.

RSC, based in Oak Park, Ill.,initially planned to build hotels, and later apartments. But the recession and credit crunch brought delays, and changes in the plans.

Last year, St. Paul-based developer CommonBond Communities Inc. agreed to buy a portion of the site. CommonBond applied for federal affordable housing tax credits that would help finance Park East Commons.

But the project failed to obtain the tax credits, which require developers to lease apartments at below-market rents to people whose households earn no more than 60% of the area’s median income. Those credits are given away in an annual competitive process operated by the Wisconsin Housing and Economic Development Authority.

RSC has forfeited $50,000 to the county for missing previous start deadlines. If RSC misses the Sept. 30 deadline, the county can pursue a $2,000 a day penalty, and can repurchase the site for 85% of the price RSC paid for the land.

Other housing developments in the Milwaukee area have recently obtained similar extensions from local communities, including Georgetown Square, an upscale apartment development in Brookfield, and the Vespera condo project, in Oconomowoc.

RSC & Associates developer finally pays taxes

Courtesy of Journal of Oak Park and River Forest

The developer of a prominent downtown Oak Park condo building has finally paid his property taxes, nearly a year after they were due. Homeowners in the property can breathe a sigh of relief, as they feared they would have to shell out their taxes twice.

RSC & Associates paid the remaining balance of the $515,000 it owed in property taxes for the 1120 Club building on Lake Street on Oct. 29. But after waiting a year past the original Nov. 3, 2008 due date to pay up, RSC is paying $68,000 in late fees, said Township Assessor Ali ElSaffar.

RSC finished the 1120 Club – a mixed-use building with condos, a gym, Bar Louie and Lane Bryant women’s store – in 2007. They got a fright in October of last year when they received a property tax bill totaling $1.9 million for the entire building.

So the developer filed a certificate of error to try and reduce the bill and paid $135,000 to help minimize any interest payments. RSC alleged that it didn’t get its tax bill until after the appeal period had ended.

Condo owners put down their property tax money when they bought their units in the 1120 Club. Some feared that the developer wasn’t going to follow through and owners would end up having to pay their taxes again.

Residents of the building publicly considered suing the developer over the tax issue and later filed a complaint over purportedly shoddy construction at the 1120 Club.

RSC eventually won out and got its property taxes dropped to $515,000 in May. For some reason, the developer waited until the end of October to pay the remaining balance on the bill. CEO Richard Curto could not be reached for comment late Monday.

The situation won’t arise again with this year’s tax bills, as the county assessor has now broken the single tax tab into dozens of pieces so individual property owners can pay each of their shares on their own, ElSaffar said.

“Now, if Mr. Curto doesn’t pay his bill, it doesn’t affect anyone else,” he said. “I think it’s a great relief for people there because they can go about their business.”

Oak Park and others get in line to sue developer RSC & Associates

Courtesy of Oak Park and River Forest Journal

Oak Park gets in line to sue developer
Village’s complaint is the third filed against Lake Street development in the past two months

Extra! Download .pdfs of the complaints

• Oak Park's complaint part 1
• Oak Park's complaint part 2
• Oak Park's complaint part 3
• Oak Park's complaint part 4

Brandenburg Family Associates complaint

Response to Brandenburg Family Associates' complaint from RSC

Condo association complaint

The Village of Oak Park is suing a company that built a prominent building in its downtown. But the village may have to wait its turn, as three other parties are already taking the Chicago-based developer to court, all together seeking more than $5 million.

With the building improperly built, the village wants to fine RSC & Associates $5,000 a day dating back to 2007, along with paying the $75,000 in staff time Oak Park has spent in addressing the building.

Oak Park filed the complaint in the Cook County Circuit Court on June 5. The company constructed a seven-story building in Oak Park in 2007. Located at 1120 Lake, it features 44 condominiums and retailers including Lane Bryant, Bar Louie and Fitness Formula Club.

Part of the project was built on village-owned land, so Oak Park entered into a legally binding redevelopment agreement in March of 2004, requiring RSC to meet certain guidelines.

Oak Park gave the property to RSC, and reimbursed the developer for demolition and remediation costs at the site.

When construction was complete, RSC was required to get a "certificate of completion" from the village, requiring inspections to make sure the building was constructed properly.

"Many" inspections have been done on the building, but the village has yet to issue the certificate, said Village Attorney Ray Heise.

As a result, Oak Park wants to fine RSC $5,000 a day, all the way back to September 2007, when the developer was to have completed the project. As of yesterday, fines would total around $3.15 million, not to mention the $75,000 in staff time Oak Park claims it has spent in dealing with RSC.

The village also wants RSC to pay for its attorney's fees, at a cost of about $190 an hour, rising from the developer's "failure to perform its obligations under the redevelopment agreement," according to the lawsuit.

"We've spent an incredible amount of staff time, associated with seeking compliance with the agreement," Heise said.

While some construction issues remain, Heise says RSC has corrected a number of problems, such as removing and re-engineering the grease duct running from Bar Louie and reconstructing the basketball court at the fitness club.

But the developer still needs to do work, such as fixing improperly built walls on the seventh floor of the building.

According to the lawsuit, RSC violated the agreement by selling the commercial aspect of the building before receiving a certificate of completion from the village. A California investor bought the retail portion of the 1120 Club in August of 2008 for $15.8 million.

RSC also failed to provide a $250,000 "financial instrument" to the village, guaranteeing the completion of the project, according to the complaint.

Other complaints filed

Three other lawsuits have been filed against RSC over the past two years, related to the 1120 Club.

In August 2007, Brandenburg Family Associates filed a complaint in Cook County circuit court in the amount of $1.5 million. The San Jose-based company backed out of a $16.2 million purchase of the commercial space in 2006. The company is suing to get back $1.5 million in earnest money it put down for the purchase.

Stein Ray & Harris filed an $18,145 complaint against RSC on April 1, but that suit has since been dismissed, according to court records.

The 1120 Club's condo association has also sued RSC and 1120 Retail LLC, the limited liability corporation that bought the commercial portion of the property. The complaint, filed May 4, is seeking $750,000.

According to the suit, cement siding was installed around the exterior of the building's seventh floor and on the balconies of the building. Multiple sections of the concrete have "warped or failed and have allowed water to penetrate in the building, causing extensive damage to the common elements and numerous residential units," according to the suit.

The condo association provided written notice to the developer of the problem, and RSC has yet to correct the defects, the suit alleges. Multiple other issues remain with the building, including mold and mildew infiltration in individual condominiums.

As a result of the unresolved work, the association claims that condo owners have suffered more than $750,000 in damages.

"These guys are looking for the cheapest way of doing it, and as a result we felt we had no choice but to file a lawsuit to get this done," said Mike Salvati, treasurer for the condo association. "Any new construction has problems. The key is you'd expect the developer to show the integrity to fix them when they come up. ... These guys have really been avoiding doing the right thing for a long time now."

Reached Tuesday morning, RSC Chief Executive Officer Rich Curto said the majority of issues raised in the lawsuits are related to inferior work done by the company's contractor, Trapani Construction Co. As such, RSC filed a complaint against the company in March, demanding that they complete the unresolved work on the seventh floor.

"We understand everyone's frustration," Curto said. "However, due to the failure of the contractor to complete the work, it has caused all of us involved here significant aggravation, and we believe that the appropriate way to resolve this is not through expensive, time-consuming litigation, but through our offers to resolve warranty work by sitting down to negotiate the process to do that."

The company has $300,000 in an escrow account to address the work, and Curto claims that is enough to complete it, despite claims from the association that it is well short. The association has declined to settle the issue in writing because of the alleged shortage, and worries that the work would be completed in a substandard fashion.

"Based upon the bids that we have obtained, we would suggest that numbers like that are not appropriate in today's construction market where contractors are extremely hungry for work," Curto said, disputing the association's claim that the work would cost more than $600,000.

As for the certificate of completion, Curto believes the village should have released that already, and he claims Oak Park is "arbitrarily" tying it to the warranty work issues on the seventh floor.

Village Trustee Ray Johnson, on the board when the redevelopment agreement was approved, said the developer appeared to have the skills to execute the building. He pointed to the health club and stores as one positive aspect of the development.

"Certainly that's been a big driver in bringing more people to town," Johnson said. "On the other end of that continuum, I will say at the time I believed the developer had the construction and financial expertise to bring a development online with little problems, but it hasn't played out that way."

The New Year Update for 2008

Not too many changes to report. RSC & Associates has moved on to other projects and has moved their focus to new developments now that the 1120 Club is structurally finished. As of today, February 23, 2008, the gym still emanates noise from the basketball court. In the meantime, the owners of the 1120 Club have been left with the unfortunate task of taking care of the mistakes, poor construction and management mess RSC and Trapani Construction has left behind. Over the beginning of the new year (January 2008) there was a short lived attempt to fix ongoing punch list items and items specifically listed in this blog. As is the norm for these companies, the attempt was that of an attempt and very little was accomplished. The usual "we will schedule the repair" was offered by Trapani Construction with no follow up.
So, there you have it folks. I guess you will have to decide how much of a loss you are willing to obtain in your property value by not pursuing a more forthcoming conclusion. You are in no way helpless in this matter. Our blog is an attempt to provide public information about an important development and construction issue. This blog was in no way defaming our beautiful building we invested in, but the standards by which it was built and the the companies who are responsible for building it. Every project has issues and complaints, but the 1120 club stands out among other Chicago and surrounding city developments because it served one purpose at this very moment - to provide profit for RSC & Associates with very little accountability to the residents who made investments.

We will be right back!

We just wanted to let you know that we will be recapping at the beginning of 2008. This means we will be going over what most of the site contains and what changes, repairs and follow ups have been made by the our developer, RSC & Associates.

Happy Holidays and we will be back in January, 2008!