Real estate developer Harry Klein, a friend and political supporter of Gov. George Ryan, said Tuesday that he is cooperating with federal prosecutors investigating how he landed a lucrative state lease from the Illinois secretary of state’s office under Ryan.
In 1997, Klein rented to Ryan’s office a nondescript, one-story brick office building in south suburban South Holland. The secretary of state’s office agreed to pay Klein nearly $120,000 a year, quadrupling his revenue from the building two years before.
The lease made Klein the owner of a lucrative property that brought in a rent of $25 per square foot, among the most expensive leases paid by the state of Illinois, rivaling the price of posh office space in downtown Chicago.
As part of the rent, the secretary of state’s office under Ryan agreed to pay Klein’s $22,000-a-year property tax bill, records show. In addition, Ryan’s office gave him nearly $54,000 to pay for improvements in the building.
Klein, a Chicago-area currency exchange owner and developer, said he has known Ryan since 1991. Ryan aides said the governor considers Klein his friend and has vacationed with in Jamaica and at a home the developer owns in Palm Springs. Klein has donated at least $5,000 to Ryan’s campaign fund since 1996, and last year Ryan named him to the board of trustees of Governors State University.
The rental of the South Holland building is part of a federal grand jury investigation into the leasing operations of the secretary of state’s office while it was headed by Ryan from 1991 to 1999, according to lawyers familiar with the inquiry.
Late last year, federal authorities expanded their investigation of the illegal sale of licenses to unqualified truckers in exchange for bribes in the secretary of state’s office to include a review of leasing practices. Investigators are examining how landlords received excessively high lease rates and whether they paid kickbacks to state officials.
Citing the federal investigation, officials in Illinois Secretary of State Jesse White’s office refused to answer any questions about the rental of the South Holland building.
White’s office also refused to release office state records under the Illinois Freedom of Information Act that would show if secretary of state officials considered other properties for rent and who else may have been involved in the deal.
“We have been advised by the office of the U.S. Attorney that the production of this information may compromise the on-going federal investigation,” secretary of state officials said in denying the Tribune’s request for records of the deal.
Responding to questions from the Tribune about the real estate deal, Klein said in a written statement that he is cooperating with federal prosecutors investigating the lease.
Klein said the rental rate for his South Holland property was fair because of the size of the facility, its large paved parking lot, and extensive improvements that he made to the building.
“I believe the square-foot charge is fair and certainly comparable to any building providing the features of this one in question,” Klein said.
Dennis Culloton, spokesman for Ryan, also defended the lease. He said Tuesday that secretary of state officials considered at least two other sites and opted for Klein’s property after negotiating the rate.
“We felt it was a very good rate and a good facility,” he said.
Culloton insisted it was unfair to compare rental rates at the facility with the price of office space in downtown Chicago, saying they are “two different animals.”
Ryan repeatedly has denied any wrongdoing throughout the 2-year-old federal investigation into the operations of the secretary of state’s office during his tenure, known as Operation Safe Road. The governor has insisted that his office diligently pursued allegations of corruption.
Thus far, 30 people have been charged in the federal investigation and 25 have been convicted, including 14 former secretary of state employees. Truckers holding licenses linked to the scandal have triggered at least three fatal crashes, killing nine people. No one has been charged in connection to any of the secretary of state leases under federal investigation.
Ryan, who was elected governor in 1998, has not been named a target of the federal inquiry. Those indicted include former secretary of state’s inspector general Dean Bauer, a longtime friend of Ryan’s from Kankakee and a member of his inner circle. Bauer has pleaded innocent to charges of racketeering and obstruction of justice.
Klein’s office building in South Holland is now one of the sites where the secretary of state conducts testing for commercial driver’s licenses, the licenses at the center of the bribes-for-licenses scandal bedeviling Ryan. There is no evidence that licenses were sold illegally at the South Holland facility.
Surrounded by cornfields and a small manufacturing plant, Klein’s office building, at 16475 Van Dam Rd., provided an ideal location just off Interstate 94., Ryan’s aides said.
But critics contain that the $25-square-foot rental rate for the property is as expensive as renting office space in the Loop, 23 miles and a world away to the north. Douglas Blount, a commercial real estate agent in the south suburbs, said office space in the South Holland area typically rents for between $17 and $20 a square foot.
A spokeswoman for the Illinois Department of Central Management Services, which pays out more than $100 million annually to rent state office space, said the rate at the South Holland facility is even more expensive on a square-foot basis than any of the hundreds of properties that the department leases.
For example, the agency’s most expensive rental is for the Illinois Racing Board in Chicago, in a laboratory at 2242 W. Harrison St. There the agency pays a landlord $22.23 a square foot.
The most expensive Loop office space is rented by the state agency for the State Board of Investment, a lease for $20.51 a square foot at 180 N. LaSalle St., the spokeswoman said. Real estate experts say Loop office rental rates run between $19 and $27 a square foot.
Klein said in 1999 his profit on the building was about $58,000 before paying any payments on the mortgage. Records show that in 1995, the building generated rents of only $30,200 and it had a net loss of $33,000.
Nonetheless, State Rep. Jeffrey Schoenberg (D., Evanston) believes the South Holland lease is excessive.
“I think these terms are exceedingly generous and needs to undergo a serious review right away,” said Schoenberg, who has authored state laws to change the way the state leases property. “What the state is paying for this space could be better suited for prime real estate in Chicago’s hottest market.”
Vexing Schoenberg further, when Ryan’s office rented the South Holland building, officials made the deal even sweeter for Klein. They paid the developer $53,700 to renovate the building.
“That ridiculous,” said Schoenberg.Klein said he paid an additional $87,000 from his own pocket to improve the building, besides the $53,000 in improvements paid for by the state.
If so, those stated amounts for remodeling and improvements to the property contradict the amount of work that contractors told officials in South Holland were being undertaken. In a permit obtained on June 12, 1997, contractors from B & J Construction Company told village officials that only $15,000 in improvements were being made to the property. Nineteen days after obtaining the permit, the secretary of state`s office moved in.
Land records show that a secret land trust has owned the property since 1992, when it purchased the land and office building for $200,000. Klein never disclosed to state officials that the property was held by the trust. Instead, when he signed the lease with the secretary of state’s office, it was on behalf of a partnership that included Klein and his wife.
Under the terms of the lease with Ryan’s office, Klein will receive about $600,000 for a five-year rental of the building. The $120,000 annual rent includes a reimbursement of $22,000 each year for real estate taxes.
Before striking his lucrative deal with the state, Klein and his wife filed an appeal with the Cook County Assessor’s office in 1996 contending the assessor had overvalued the property.
In arguing for a reduction, Klein’s attorneys submitted federal income tax records that showed in 1995 the property generated only $30,200 in rent. In two previous years, the rental return was slightly higher, $38,700 in 1993 and $45,600 in 1994.
Culloton, Ryan’s spokesman, said the rents were low in those years because Klein maintained an office in the building.
In 1979, Klein and 16 other people involved in the currency exchange industry were indicted on federal charges that accused them of illegally funneling cash to state legislators from 1967 through 1976. Prosecutors dismissed charges against nine defendants, including Klein.
