Property development holding company 5035 N. Lincoln Avenue, LLC filed for Chapter 11 bankruptcy on June 2, 2021, as it attempts to navigate a mortgage foreclosure and multiple mechanics lien claims amidst its alleged mismanagement — with one owner accusing others of using development funds for “personal gain.”
Founded in 2019 by Joseph Zivkovic and Justin Toti to develop four parcels of property at 5035 N. Lincoln Avenue in Chicago, the company demolished a strip mall to build four multi-unit residential apartment buildings.
According to bankruptcy documents, construction of the brick and concrete structures on two of the four buildings had been completed on June 2, 2020, while the foundation had been poured for the two others. However, to date, this is the last completed work on the project. Around the same time as this work was done, the company defaulted on two loans that had been taken out in 2019.
5035 N. Lincoln has additionally been subject to multiple mechanics liens which “[alleged] that [companies] performed work at the Property on the Development and have not been paid for their goods/services, including one mechanic’s lien claim in the amount of more than $5 million.”
The company’s bankruptcy filing listed 74 creditors, while among that number is a group of at least 37 contractors and suppliers from Illinois, Michigan, and Tennessee.
While specific information about unsecured claims requested in the bankruptcy filing was listed only as “unavailable,” 5035 N. Lincoln’s estimated liabilities are between $1 million and $10 million. Documents also listed an estimated $1 million to $10 million in assets.
Chapter 11 bankruptcy continues to be prevalent in construction during 2021, and some companies hit during the COVID-19 pandemic have used the protections afforded by Chapter 11 to attempt to reorganize their business operations until the construction industry begins to restabilize — which may be soon, as the industry is projected to grow 15% over the course of 2021.
Unlike Chapter 7 bankruptcy, Chapter 11 allows debtors to develop a plan of payment and reorganization so that they can maintain operation, retain key assets and property, and pay back creditors over time.
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Statement from property manager supports the bankruptcy, alleging prior mismanagement
Amidst the company’s bankruptcy, an affidavit by Yuval Lapidot — manager of 5035 N. Lincoln since December 28, 2020 — offered insight into the issues surrounding the company.
Lapidot notes that on September 5, 2019, the company obtained loans of $9,761,904 and $1,300,000, currently held by Redwood BPL Holdings 2, Inc. and YL Chicago Fund, LLC (a lender managed by Lapidot), respectively.
According to the statement, by July 21, 2020, the outstanding balance of the company’s Redwood BPL loan was $5,368,748. Additionally, the interests of the owners in 5035 N. Lincoln were pledged to Lapidot as collateral for the YL Chicago loan.
However, the company defaulted on its loan to YL Chicago in March 2020, and a July 2, 2020, judgement ruled that 5035 N. Lincoln would be required to pay at least $2,742,307 to YL Chicago, resulting in the company’s equity interests officially being transferred to YL Chicago in December 2020.
Similarly, Redwood BPL moved to foreclose on 5035 N. Lincoln on August 26, 2020, citing the over $5 million in outstanding debt from July 2020.
Recent mechanics liens have been filed on the property for nonpayment, as well. An October 27, 2020, lien filed by Chicago’s Elston Materials, LLC claims that it has not been paid any part of its original $20,086.93 contract, while a January 12, 2021, lien filed by IK & Associates, Inc., d/b/a Kutlesa/ Hernandez Architects claims $30,645.
In an interesting development, I Dwell Chicago, LLC additionally filed a lien against the property for $5,259,520 on August 29, 2020 — an action whose legitimacy Lapidot’s affidavit casts into doubt given the ownership of I Dwell Chicago.
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Filing alleges fraudulent use of company funds by former owners
In an effort to explain the company’s struggles, Lapidot’s statement claims that, prior to the company’s acquisition, Zivkovic and Toti (who passed away on May 29, 2020) significantly mismanaged the company and may have used company funds for personal purposes.
Lapidot states that, rather than hire a legitimate general contractor, “Zivkovic…caused [5035 N. Lincoln] to retain I Dwell Chicago, LLC, an entity allegedly owned and managed by Zivkovic’s spouse, Deanna Zivkovic…to be the general contractor for the redevelopment of the Property.”
He continued in saying “I do not believe that Deanna has any real estate development experience or expertise or that she actively managed or operated I Dwell…Instead, Zivkovic previously represented to me that he managed and operated I Dwell.”
The previous owners may have diverted funds inappropriately, as well. Lapidot claims that “…bank statements reveal that Toti, Zivkovic and Deanna, directly and through entities owned or controlled by them, collectively received hundreds of thousands of dollars from [5035 N. Lincoln] and appear to have used those funds for personal purposes, including Zivkovic’s investments through a personal investment account with Robinhood Financial.”
Much like the mechanics lien claims placed on the 5035 N. Lincoln project, debts to other contractors may have been a part of the problem.
Lapidot notes in his statement that “It also appears that Zikvovic and/or Deanna may have diverted the Debtor’s funds to help fund the completion of other development projects in which one or both of them had an interest.”
The May 2020 passing of Justin Toti caused more bank documents to be dredged up. Lapidot noted that “I learned that [5035 N. Lincoln] had received two previous draws [from its loans] even though Toti and Zivkovic both told me that no previous draws had been received,” continuing to add that “just a few days after Toti’s death, [the company] received a third draw in the amount of $943,262.92 under the [Redwood BPL] Loan.”
Due to “the state in which [5035 N. Lincoln’s] former owners and managers left the business and the Development,” Lapidot claims that Chapter 11 protection is the best course of action for the business.
“This proceeding will enable [5035 N. Lincoln] to conduct examinations to obtain information that I have not yet been able to obtain,” Lapidot summarized. “Chapter 11 will also provide [the company] with the best forum to deal with claims, restructure its balance sheet and implement a plan to complete the redevelopment of the Property.”