CLEVELAND — A year after the Department of Justice (DOJ) filed a civil forfeiture complaint in the Southern District of Florida related to a fraud and embezzlement case involving 55 Public Square’s former owner, Cleveland City Council leaders say that huge case is just the largest example of something that happens in surrounding communities all the time.
The Ukrainians down the block
The DOJ says Ihor Kolomoisky, Gennadiy Boholiubov and their associates, “purchased hundreds of millions of dollars in real estate and businesses across the country, including the properties subject to forfeiture: the office tower known as 55 Public Square in Cleveland, Ohio.”
But their string of corporations, all with names involving the “Optima” name, owned a long list of other properties, including five potential marquee downtown buildings: 55 Public Square, the Huntington Bank Building, the AECOM Building, The Westin Cleveland Downtown Hotel, and One Cleveland Center.
“The owners couldn’t believe they were getting that amount of money,” said court-appointed receiver Mark Dottore, who often deals with buildings in foreclosures and international investors. “There was not a bunch of negotiating, they saw value and bought.”
Dottore says large amounts of cash always has power in real estate transactions, but especially in the mid-to-late 2000s, when Downtown Cleveland was still waiting for the widespread revitalization that would follow a decade later.
Now, the Department of Justice says those purchases were part of an elaborate money-laundering scheme wherein Kolomoisky and his associates diverted money away from the investments while the buildings suffered. Dottore says the goal was never to improve the buildings, let alone make them profitable.
“They had no idea because they couldn’t care less,” said Dottore. “They were taking the cash, hiding it, and then shipping it back to Austria where they were laundering the money and sending it back to Ukraine.”
Eventually, the FBI and IRS raided One Cleveland Center in August 2020 before the assets were eventually seized a few months later.
“When you get issues like Optima, obviously it’s a huge problem — not only the federal money laundering, but getting them to take care of their building,” said Ward 3 Cleveland City Council member Kerry McCormack.
All five marque buildings once owned by Optima sit in McCormack’s ward and he says it was a huge case that points out the limited enforcement options available to municipal courts trying to track down absentee owners and landlords.
“How do you send the sheriff to an LLC in Ukraine?" McCormack asked. “The good thing is that in Cleveland, we recovered from it.”
He says a growing demand for downtown living options and an office market slowly recovering from COVID-19 has driven local investors and developers to jump in, making it much harder for bad actors to launder money through empty downtown buildings.
“So when you have a building default because of poor management or in this case money laundering, other folks are picking those buildings up, buying them renovating them,” said McCormack.
55 Public Square was ultimately bought by K&D, which has a robust lineup of other properties nearby, which is turning it into new office and apartment units.
The AECOM Building recently announced four new retail tenants, including the Winking Lizard which is walking across East 13th Street from the Galleria.
The Huntington Bank Building is slated to become a massive amount of workforce housing with a large restaurant and historical showcase in the building’s massive lobbies.
The Westin Cleveland Downtown Hotel is now under new management that has experience in the hospitality industry.
The smaller, but more common issue in Cleveland neighborhoods
Cleveland City Council members McCormack and Michael Polensek say only the scale of Optima’s absenteeism is abnormal, not the trend of out-of-towners or even foreigners buying land in and around Cleveland.
Polensek says he met a couple from France buying a property in his community because it was affordable and they were confident they could make a profit flipping it in a few years.
The problems arise when those owners allow their properties to fall into disrepair and they live too far away for housing courts to hold them accountable.
“If my name is on the county website for my home and I don’t keep it up, I’m going to housing court, so why shouldn't they have that same responsibility?” said McCormack.
News 5 Cleveland followed a similar case where a home on Dearborn Avenue in Cleveland had fallen into disrepair. Records suggested the people behind the Limited Liability Corporation (LLC) that owned the home lived out of state, making it virtually impossible for the Cleveland Housing Court to compel them to fix the property. That difficulty came despite the fact that there were multiple police calls to the home for the people who would come and go from the abandoned property.
The home was eventually put on Cleveland’s demolition list and a year and a half after News 5 first reported about its condition, the home was torn down in February 2020.
That’s why McCormack is calling for stronger state and federal laws that could allow housing courts to hold people and not their often-hard-to-find LLCs financially responsible for their properties.
“Really having better federal and state laws that force transparency over LLC and ownership would be incredibly helpful for cities like Cleveland or cities across the country that are fighting these shadowy landlords that are really a detriment to our neighborhoods,” said McCormack.
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