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In 1978 or 1979, Frey began converting rental property into
condominiums. Frey or a Frey Corporation purchased rental
property, refurbished it, and then sold the individual units as
condominiums. Frey or a Frey corporation earned development fees
for managing and supervising the renovation and conversion work
on the property. A condominium project typically involved the
use of a limited partnership. As a partner in the partnership,
Frey or a Frey corporation would also receive profit
distributions that were based upon sales of condominiums. Frey
or his Corporation also earned management fees for their services
in managing the condominium units following the conversion.
Frey's first condominium conversion project was called Moon
Lake Village and involved an apartment building located in
Hoffman Estates, Illinois. A joint venture limited partnership
was formed to purchase the apartment building and convert it to
condominiums. Frey was the general partner in the partnership
and there were several investors who made contributions to the
partnership. A Frey corporation received development fees,
profit participation, and management fees in the Moon Lake
Village project. Neither Kanter nor Prudential was involved in
the Moon Lake Village project.
After successfully engaging in the Moon Lake Village
conversion in 1978, Frey met and consulted with Kanter to obtain
tax advice in connection with that project. During their meeting
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