Allegations of Israeli bond misuse overshadows Mike Kohan’s Chicago skyscraper buying spree, according to The Real Deal, a U.S.-based media company and news outlet focused on covering both commercial and residential real estate.
      “As the prolific landlord (who owns the Southern Park Mall in Boardman) went on the hunt for massive ‘Chicago Loop’ office discounts, regulatory filings claim millions in public bond proceeds were secretly diverted to private debts,” says a story written by Sam Lounsberry.
      The mall landlord magnate, who has recently turned his attention to the Windy City’s depressed office market as a persistent buyer, allegedly diverted millions in bond proceeds to cover debts on his personal assets, according to Israeli regulatory filings made last month.
      The controversy, detailed in responses to the Israel Securities Authority submitted to the Tel Aviv Stock Exchange, sheds a harsh light on the financial practices of Kohan’s eponymous Great Neck, New York-based company, Kohan Retail Investment Group, and its recent expansion into Chicago.
      The allegations come against the backdrop of a historic slump across downtown Chicago’s commercial office sector, where soaring vacancy rates averaging 28 percent and tenant exits — such as Citadel’s departure for Miami — have triggered nosedives in property values that allowed investors like Kohan and other Great Neck-based buyers like Igal Namdar to take advantage.
      Over the last year, Kohan went on a high-profile buying spree, acquiring three Loop office towers. The firm bought the 1.3 million-square-foot building at 311 South Wacker Drive for $45 million — an 85 percent drop from its 2014 sale price — and closed on the 1.5 million-square-foot former Citadel Center at 131 South Dearborn Street for $137 million, a 76 percent discount from its previous debt refinancing.
      However, Israeli regulatory filings reveal that behind Kohan’s image as a contrarian turnaround player pouncing on distressed office prices, he’s accused of improper transfers by his own company.
      According to the Tel Aviv Stock Exchange documents, a British Virgin Islands-based entity tied to Kohan secured a $4.7 million preferred equity loan against his stake in 311 South Wacker during the first quarter this year. While his company initially stated these funds were used to cure loan defaults on a company-owned retail property in Montana, an internal investigation revealed that $2.5 million was instead funneled toward Kohan’s personal properties outside the firm’s portfolio. Compounding the issue, the company then used about $7 million from a public bond issuance to fully pay off this loan, a transaction omitted from its prospectus.
      In an interview with The Real Deal, Kohan pushed back on how those funds were handled, claiming the $2.5 million sent toward his personal assets was spent in a manner directed by a financial partner rather than himself.
      Furthermore, the Israeli bond market filings outline a complex series of controversial transactions surrounding the acquisition of 131 South Dearborn. After a regulator’s inquiry into a company allegation that Kohan misappropriated an additional $9.6 million from bond proceeds for noncompany assets, he claimed to have returned the money by rolling it into a $25 million independent equity payment for the South Dearborn purchase.
      However, a company filing published July 29 said he was wrong, confirming that Kohan still owed the firm about $3.8 million after accounting for further withdrawals, partial repayments and fee offsets.
      Kohan told The Real Deal that he expects to repay that $3.8 million balance owed to bond investors on the Israeli bond market by the end of August. In the meantime, Kohan Properties’ board has imposed a 15 percent annual interest penalty on the missing funds and enacted strict corporate governance reforms, appointing a new CFO, Ran Ben Daniel, and stripping Kohan of sole signatory power over company accounts.
      Kohan’s high-stakes financial maneuvers extend beyond the assets involved in the Israeli bond filings, spilling into other prominent Chicago office deals. In January, Kohan took control of the 28-story high-rise at 33 West Monroe Street through a deed-in-lieu of foreclosure after buying its $60 million mortgage at a steep discount — reportedly for about $25 million.
      But Cook County, Illinois property records show Kohan’s venture financed the move by taking out a $12.6 million short-term loan against the 33 West Monroe property from Underground Lending, LLC, a venture linked to Atlanta-based commercial real estate investor Shaneel Lalani. The high-interest mortgage carries a steep 25 percent annual fixed interest rate, jumping to a 36 percent default rate, and matures on October 20.