Just who is building Mandarin?
Filings on downtown high-rise reveal partners linked to alleged mob `front'
By Thomas A. Corfman
Tribune staff reporter
Published October 2, 2005
Gerard Kenny, the Chicago construction executive who is planning to build a 90-story hotel skyscraper adjacent to Millennium Park, has a registered business venture with a developer identified by authorities in Pennsylvania and New Jersey as a front man for organized crime figures.
Leonard J. Mercer Jr. was Kenny's original partner in the $550 million deal to build the Mandarin Oriental, envisioned as a glittering addition to Chicago's skyline. Kenny said Mercer later withdrew from the deal. He was replaced, however, by two associates who were denied licenses last year by New York racing authorities after published reports highlighted their business ties to Mercer.
Mercer is a convicted felon who was once described by the Pennsylvania Crime Commission as a "front man" and "land speculator for various organized crime figures."
Kenny and Mercer operate a company called Wheeling Partners of Illinois LLC, which filed documents with the state as recently as June and has not been dissolved. Kenny said Friday that the Wheeling firm, formed to build the Mandarin, is now inactive.
Instead, Kenny is building the skyscraper with Patrick Danan and Frank A. Leo, businessmen with close ties to Mercer. Danan and Leo tried to buy a New York racetrack last year with the financial backing of Mercer. They were denied racing licenses when they did not provide state-mandated financial disclosures.
The quiet connection between the massive Mandarin construction project and an alleged associate of the mob wasn't noticed by the city's Planning Department when aides attached Mayor Richard Daley's name to a press release hailing the Mandarin development.
"The project only serves to further enhance the amenities and visitor attractions in and around Millennium Park," Daley was quoted as saying on June 6.
Connie Buscemi, spokeswoman for the city Planning Department, defended the city, saying it could not have known of Mercer's ties to the project because a formal development plan had not yet been filed. Such a plan, she said, would have triggered closer scrutiny by city officials.
Nonetheless, the Planning Department does not routinely conduct extensive background checks on participants in private real estate deals the way state agencies might investigate participants in regulated industries such as gambling.
Even so, a simple Internet search would immediately illuminate the connections between Danan, Leo and Mercer through the New York racetrack deal.
Because of the lack of regulatory oversight, it is difficult to document how frequently investors who have been publicly linked to organized crime enter the Chicago real estate market.
"There are all kinds of ways that organized crime could have a piece of this," said Douglas Roller, a former head of the Chicago organized crime task force of the U.S. Justice Department.
"The biggest issue is: Where is the money coming from?" said Roller, now in private practice in St. Louis with the law firm Helfrey Simon & Jones.
The three participants in the Mandarin deal--Kenny, Danan and Leo--insist that the project is legitimately funded and free of involvement by organized crime.
But Alton Miller, Mayor Harold Washington's former press secretary, said the city and the mayor risked, at the least, an uncomfortable public-relations problem.
Miller said that Daley's endorsement of a project with any connection to Mercer or his associates represented "sloppy staff work," especially given that prosecutors are investigating allegations of City Hall corruption.
"At a moment in his career like the one we are in, you would think they'd be on red alert over there," he said.
Mercer, a Florida real estate developer, was identified in a 1995 New Jersey State Commission of Investigation report as an "associate" of Philadelphia's Scarfo crime family and a "front" in a real estate deal for a bookmaker linked to organized crime.
Mercer did not respond to requests for an interview. Danan and Leo declined to be interviewed, but responded in writing to some questions from the Tribune.
Kenny said that his company with Mercer for the Mandarin project had been dissolved, but he could not explain why Illinois state records showed it still existed, as of Friday.
At first, Kenny explained that he asked Mercer to withdraw because of the controversy over the New York racing deal. But in a subsequent interview, he claimed Mercer dropped out voluntarily.
"He stepped aside because of his reputation," Kenny said. "He told me, `You have a great deal here, and I don't want to interfere.'"
About Mercer, Kenny said, "I have nothing but good things to say about him." And Leo, a wealthy retired printer, "is a man of his word," Kenny added. "I checked him out."
Kenny, 56, has controlled the Mandarin site since 1998. He now spends most of his time on real estate deals, although he said he remains a director of Kenny Construction Co. The Wheeling-based firm has been involved in major Chicago public works projects, including the renovation of Soldier Field and the downtown repair project after the 1992 Loop flood.
Kenny's brother, James, a former company executive and a Republican fundraiser, was named U.S. ambassador to Ireland in 2003. The company and its executives have also given contributions to some Democrats, including Daley, who has received $8,000 from them since late 1999.
Kenny Construction would earn lucrative fees building the 1.2 million-square-foot Mandarin project, to be completed in 2008. Plans for the 215 N. Michigan Ave. development include 300 luxury condos and 250 hotel-condo units. An additional 50 condos, to be called Mandarin Oriental residences, would use the amenities of the hotel, including a spa. A New York-based spokeswoman for Mandarin did not return calls requesting comment.
Last year, Mercer, Leo and Danan formed a company for the Mandarin project without Kenny, but the firm was dissolved last month when it did not file an annual report.
Kenny announced the Mandarin deal on June 6, listing Leo and Danan in the press release as partners. Two days later, Mercer's name appeared on paperwork filed with the state by Kenny's Wheeling Partners.
Another company, named 215 Developer, was formed with Kenny in July, Danan and Leo said. This company acquired the Mandarin site for $27.2 million last month from a venture controlled by Kenny, who bought the parcel seven years ago for $4.4 million. Although Kenny has partly cashed in on his investment, he said he remains deeply involved in day-to-day operations of the hotel development, he said.
Mercer, 71, owns International Housing Development Group Corp., a Ft. Lauderdale company of which Danan, a 60-year-old architect, is president, according to corporate and court records. During most of the last five years, Mercer was listed as vice president, but removed himself as an officer this year.
In the early 1980s, Mercer was already an established Philadelphia real estate investor when he became part of a venture that developed the Ocean Club condominiums, a twin, 34-story tower complex on Atlantic City's Boardwalk, perhaps his first high-profile deal.
His business interests eventually expanded to Florida, where he owned a Ft. Lauderdale hotel and Ta-Boo, a well-known Palm Beach nightspot.
But Ta-Boo filed for bankruptcy in 1985, and Mercer later pleaded guilty to federal charges related to kickbacks for a loan for Ta-Boo from a New Jersey Teamster pension fund, according to newspaper accounts and a 1990 report by the Pennsylvania Crime Commission.
In 1995, Leo retired after selling off Colorforms, a direct mail printing firm he founded and co-owned in New York. It was sold to a company then called Wallace Computer Services, of west suburban Hillside, for $27 million in cash and stock, plus assumed debt.
Between 1996 and 1998, Leo was at various times chairman, acting chief executive and a director of a New Jersey racetrack company controlled by Robert Brennan, the flamboyant owner of First Jersey Securities Inc. Brennan was found guilty in 2001 of money laundering and bankruptcy fraud and sentenced to more than nine years in prison.
In a related civil case, the Securities and Exchange Commission alleged in 2000 that a company controlled by "close associates" of Brennan, including Leo, was a front for Brennan's purchase of a Ft. Lauderdale cruise ship at a time when Brennan was under a court order not to transfer assets, court documents show.
"He told me he was just helping a friend," Kenny said of Leo.
Based on the SEC's allegations, a federal judge barred a transfer of the ship and issued a criminal contempt citation against Brennan, who received an additional jail sentence. Leo was not charged with any wrongdoing in the case.
Last year, Leo and Danan were part of a venture that acquired a majority interest in Vernon Downs, a hotel and harness racing track near Syracuse, N.Y., also approved for 1,000 video lottery terminals for computerized gambling.
Although not a named buyer, Mercer helped finance the racetrack deal by guaranteeing a portion of the loan used to buy the stake, and his development company would have redeveloped the 600-acre property, according to documents related to the sale.
Amid newspaper reports of Mercer's role in the venture and Leo's ties to Brennan, Danan and Leo did not complete financial disclosures required by the New York State Racing and Wagering Board. A cash crisis then forced the racetrack's parent company to file for bankruptcy protection from creditors.
The racing board is still seeking to force the Mercer group to divest its stake in the racetrack, though Mercer and Danan deny having ownership, according to bankruptcy court documents.
In a written response to questions posed by the Tribune, Danan and Leo said they dropped the racetrack applications because they no longer need licenses. But in July, they teamed up with Mercer and the seller to propose a reorganization plan for the racetrack that ultimately proved unsuccessful, according to court documents.
Danan and Mercer are listed as managers of 19 active companies, five of which include Leo, according to Florida corporate records.
Chicago's Department of Planning said it was unaware of all this when it provided two quotations from Mayor Daley for the press announcement about the Mandarin development. Hong Kong-based Mandarin Oriental International Ltd., which is known for its high level of service, has agreed to manage the hotel but will not own it.
Buscemi explained the city's praise for the project, saying, "Whenever a business like Mandarin Oriental expresses interest in coming to Chicago, we are always pleased at hearing that."
But she said the project would face closer scrutiny after a formal development plan is filed.
"There is still a very public process that would involve the Plan Commission and possibly the City Council, depending on what is proposed," Buscemi said. "We will look at every aspect that we need to look at before a final decision is made."
Kenny remains optimistic about the deal.
"The mayor's very excited about the project," he said.
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Lakeshore East, Mandarin, Waterview, Trump, etc...this is a big enough place where everyone can get what they want. I hope all the developments are a huge success.
Their locations are great, like many of the new buildings in River North. But that is about it.
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