It’s taken three years, but the co-owners of Regent Realty Group are finally facing federal charges of stealing more than $2 million from 48 condo associations, Crain’s and the Tribune report.
Regent co-owners Jay Strauss of Scottsdale, Ariz., and Donald Doering of Wilmette, allegedly defrauded condo owners by using money meant for property maintenance to pay off debts on a development. Complaints about Strauss and Doering have circulated in the press since January 2008, when condo associations began filing theft reports and lawsuits against the suddenly closed realty company. One year later, the missing money was the subject of a feature article in Chicago Magazine, by which point Strauss had sold his Chicago home and “retired to a Spanish-style villa in Scottsdale.”
One way to guard against large losses is to keep your reserve account separate from your operating account — and don’t give the property manager access to the reserve account. Cut yourself a check every six months for your budgeted reserve contributions.
There’s no reason, beyond convenience, for a property manager to have access to the reserve account. Drawing from reserves should require a vote by the board at an open meeting anyway.
That won’t ensure they won’t waste your money — but it will ensure you won’t be wiped out by your management company. The example of the association that lost $300,000 is tragic and avoidable: they should have kept that in a separate account. (Or two separate accounts — FDIC insurance maxes out at $250k.)
“Everyone trusted Jay Strauss.”
That opening line in the Chicago Magazine article had me laughing and shaking my head when I first read it two years ago. Jay Strauss was widely known in the real estate business, and I’d never met anyone in the business who would have trusted him with anything.
I was thinking of Strauss, who I’d dealt with briefly on several occasions, as I passed Metropolis Lofts, 1934 N Washtenaw, this morning on my way to another appointment. The property was one of the associations from which Strauss had allegedly stolen, and I hadn’t seen any updates until catching up with this Yo post.
It’s sad that we have to rely on the federal government to enforce any laws relating to real estate in Chicago. Too many of the bad guys in the business cynically rely on the absence of local law enforcement and the scarce resources available to the feds.
Joe, what do you think about calls to license property managers? I’m not sure what I think. On the one hand, it establishes a basic credential to get into this business — something that can be revoked for bad behavior, even if such behavior falls short of criminal behavior.
On the other hand, though, the credentials can never be strict enough to stop stuff like this. Regent would definitely have been licensed, and licensing might keep out decent smaller shops that don’t want to deal with the administrative burdens.
Jeff,
In Illinois, licensing is a credential that lulls consumers into a false sense of security. The state never applies or enforces any real standards. The credential is meaningless here.
I’d note, re your last point, that anyone who doesn’t want to deal with administrative burdens doesn’t belong in the property management business.
There are licensed brokers who have served time for financial felonies. One of them was one of my loan officers, and he went to federal prison for shaking down developers for kickbacks on loans. I was shocked to meet him years later as the managing broker for a major firm’s branch office. There’s a long list of attorneys who get their law licenses back shortly after getting out of prison.
Associations need to take basic, simple steps to protect themselves. Your advice re the reserve account is sound, and easy to implement.
Another simple step is to require a separate operating account for the association and for someone on the board to look at the bank statement each month and examine each check that’s been drawn. This can easily be done online through most banks.
If associations had exercised some prudent oversight they wouldn’t have become victims.
From the outset there were dark rumors about what might have taken Jay Strauss from a heavyweight position with Cohen Financial, and having been the president of the Illinois Mortgage Bankers Association, to operating a two-bit realty company on Southport. Strauss’ credentials gave some people a false sense of confidence, when they should have raised a question: what happened that brought him here?
Trivia item: early on, one of Regent’s main sources of income was operating an apartment locating service. That alone raised a warning flag for me.