“WE DON’T WANT NOBODY NOBODY SENT”

6/12/09

The latest political scandal in the Second City involves Richard II’s nephew, Bob Vanecko, the oldest of the grandchildren of Richard I. It seems that several years ago Mr. Vanecko entered into a real estate investment partnership with mayoral pal, and former Obama boss, Allison Davis. This partnership, DV Urban Realty, has been entrusted with the investment of $68mm of assets from various city pension funds with hedge fund type pricing; i.e., a management fee north of 100 basis points and a share of the profits, presumably 20% or thereabouts. Further, the city has leased a large piece of industrial property owned by DV at rents that seem suspiciously high. Despite that apparent sweetheart deal, DV has, overall, lost a pile of spondulicks for the pensioners, but Vanecko and Davis are still entitled to the management fees, $2.7mm so far and $8mm over the life of the eight year deal. It’s hard to fault DV for losing money in this real estate market, but, obviously, it is not DV’s investment performance that has the feds barking at its door. A few days ago, Mr. Vanecko severed his relationship with DV in the wake of federal scrutiny of the pension contracts.

The presumption by many seems to be that Mayor Daley somehow directed the pension board members to allocate some of the funds’ assets to DV. The Mayor vigorously denies any involvement with DV’s getting the pension business and has further stated that, as far back as 2007, he advised his nephew to end “the business relationship (It’s not clear whether he meant the relationship with DV and Davis or the business DV was doing with the city pension funds.) immediately” because, as Daley said, “Perception is everything.” Vanecko ignored his advice, according to the Mayor.

Given the way power is concentrated and wielded in Chicago, it is by no means outlandish to presume that the Mayor exercised some influence to direct city money to his nephew and his longtime friend. However, I don’t think that’s a correct presumption for several reasons.

First, if the Mayor wanted his nephew to get city business, he wouldn’t have to make phone calls or call people into his inner sanctum on the Fifth Floor of City Hall. Everyone on those pension boards had to know that Vanecko was the Mayor’s nephew and, given the way things have worked in this city since at least the time of Big Bill Thompson (1919-1923 and 1927-1931), and probably longer, that knowledge influenced the board members’ decision making process. You can almost see and hear the perhaps sub rosa discussions: “Hey, this kid’s the Mayor’s nephew, ya know, and we all know Allison, don’t we?” Wink, wink. All of a sudden, young Mr. Vanecko is the Warren Buffet of Chicago real estate.

Second, the Mayor is, contrary to the assumption of many of his critics, no fool, and with all the federal heat surrounding local government around here, it would be the height of idiocy for the Mayor to be directly interfering in the direction of city business, at least city business of this magnitude. The Mayor simply wouldn’t expose himself to federal scrutiny for the sake of anyone, even a member of the tight Daley clan, especially when he wouldn’t have to do so in order for the deliberations of the pension boards to have a favorable outcome for Messrs. Vanecko and Davis.

But what if one believes the Mayor’s story that he didn’t want the pension business to go to his nephew, if only for appearance’s sake? Wouldn’t he want to make these wishes clear to the pension boards? One has to ask why the Mayor would subject himself to federal scrutiny to make sure his nephew DIDN’T get the business if he wouldn’t take that risk to insure that he DID get the business. That is, if Vanecko, and Davis’s, getting the business would impart the appearance of possibly felonious finagling, why actually engage in the feared finagling in order to avoid the appearance of such finagling?

This whole thing doesn’t smell very good, and may not turn out so well for Mr. Vanecko and possibly for Mr. Davis, but one has to doubt that the Mayor is so obtuse as to have this somehow reach him.