Top Obama advisor was tasked with helping kill controversial income tax perk used by the “wealthy and well-connected.” Yet she made a killing on a Chicago real estate deal by enlisting the benefit.

Valerie Jarrett, one of President Obama’s closest friends and advisors, personally benefited from an income tax “loophole” that she has worked to close because Obama says it unfairly helps the “wealthy and well-connected.”

valerie jarrett official
Valerie Jarrett

The precise amount of the break Jarrett received under the controversial “carried interest tax loophole” is not known, but the Better Government Association estimated it could have saved her $200,000 or more.

The loophole was applied to Jarrett’s earnings from a 2013 Chicago real estate deal involving a $160 million luxury apartment high-rise – earnings that topped $1 million and came while she was working for the White House as a senior advisor to the president, according to records and interviews.

The term “carried interest” refers to money paid to wealthy investment managers that is taxed at the capital gains rate of 20 percent, about half the 39.6 percent maximum rate applied to salaried income. Since his first presidential campaign, Obama has proposed taxing carried interest income at the higher rates.

Federal law prohibits executive branch employees from playing a substantial role in official matters that would have a direct impact on their financial interests. Employees are required to remedy conflicts of interest by asking to be recused, requesting a waiver or selling assets.

Other federal appointees have been forced to divest themselves of assets that could cause a conflict. White House lawyers who reviewed Jarrett’s finances allowed her to keep her interest in the development project that brought her the tax perk, according to records and interviews. There is no record of a White House waiver allowing Jarrett to work on the issue.

Jarrett is one of the president’s key point people on the yet-unsuccessful effort to eliminate the loophole enjoyed by executives of hedge funds, private equity businesses and real estate development firms.

Her spokeswoman would not confirm or deny that Jarrett and her development partners, Habitat Grand Kingsbury LLC, were able to take advantage of the loophole. But her business associates confirmed that the deal did produce a carried interest benefit for Jarrett and her partners.

Jarrett declined to comment for this article, but her spokeswoman provided a statement.

“The Habitat investment disclosed on Ms. Jarrett’s forms is one she had over 6 years ago, before coming to the White House,” spokeswoman Rachel Racusen said. “Since coming to the White House in 2009, she has had no involvement in or knowledge of any investment decisions made by Habitat or other private companies, including this sale.”

“In adherence with our rigorous ethics process – the most stringent ethics rules any Administration has ever self-imposed – Ms. Jarrett does not engage in discussions related to policy matters that could present a conflict of interest. And as a senior member of the President’s team, she strongly supports his proposal to close the carried interest tax loophole.”

Starting in 2010, Jarrett, as the president’s liaison to the business community, was called on to discuss the Administration’s proposal to eliminate the carried interest loophole at three meetings held by the Real Estate Roundtable, a group of top industry executives. She listened to complaints that the changes Obama wants would hurt the real estate industry, according to the Real Estate Roundtable newsletter.

Jarrett also met separately with angry hedge fund executives, according to a March 2012 article in the New Republic.

She also went on the talk show circuit promoting the cause, appearing on MSNBC, Bloomberg TV and NPR in 2011 and 2012.

“This is about fairness. It’s about equity,” Jarrett told Michel Martin of NPR. “Things have gotten out of kilter.”

The term “carried interest” describes the performance fee paid to private equity and hedge fund managers for managing other peoples’ money when their deals or funds exceed certain profit thresholds. It can also be an extra share of the profits paid to developers in real estate deals with outside investors when certain benchmarks are exceeded.

Under current tax rules, carried interest is classified as capital gains – which are taxed at the lower 20 percent rate to encourage people to take the risk of purchasing assets such as stocks and bonds. But real estate developers and investment managers can get the tax benefits with much less personal investment or risk.

In every annual budget message since taking office, Obama has pounced on carried interest, which allows the wealthy to pay lower tax rates on their compensation than the middle class. He pushed the elimination of the loophole as a key mechanism to finance the 2011 jobs-creation bill he submitted to Congress called the American Jobs Act.

In a September 2011 address to Congress, he said: “Should we keep tax breaks for millionaires and billionaires? Or should we put teachers back to work so our kids can graduate ready for college and good jobs?”

Obama also made carried interest an issue in the 2012 campaign against Mitt Romney. The former private equity mogul had saved an estimated $2.5 million in taxes in 2010 and 2011 by using the loophole. An Obama television spot included this line: “Tax havens, offshore accounts and carried interest, Mitt Romney has used every trick in the book.”

During the campaign, Jarrett was enlisted to try to smooth things over with hedge fund operators, who had backed Obama against John McCain four years earlier but whose support was wavering, according to the New Republic article. But the article said the meetings “became counterproductive and pretty much stopped.”

Campaign contributions from hedge fund interests shifted to Romney by a four-to-one margin, according to records compiled by the nonpartisan Center for Responsive Politics.

Despite Obama’s efforts, the reform has failed to pass in the U.S. Senate.

A profitable sale


Before Jarrett came to the White House in early 2009 as one of Obama’s key advisors, she was a $300,000-a-year executive at The Habitat Company, a Chicago-based real-estate development firm that for 40 years has shaped the city’s skyline and neighborhoods.

In 2005, when Jarrett was a Habitat executive vice president, she helped develop a 46-story apartment tower called Kingsbury Plaza, located at 520 N. Kingsbury St. just north of downtown and owned under the name Grand Kingsbury LLC. The managing partner was an offshoot called Habitat Grand Kingsbury LLC, owned by Jarrett, Habitat founder Daniel Levin, Levin’s wife Fay Hartog-Levin and three other top Habitat executives.

Jarrett owned 10.67 percent of the equity of Habitat Grand Kingsbury, according to her federal economic disclosure statement, a publicly available form White House officials are required to fill out.

To pay for the $104 million construction cost, Grand Kingsbury took out a $71.5 million mortgage. Jarrett’s group brought in the General Electric Pension Trust as its financial partner, and the trust put up $30.4 million, most of the equity for the project. The GE fund, like many larger pension funds, invests in real estate to grow returns for retirees.

The high-rise opened in 2007, featuring splendid views of downtown along the Chicago River, elegant interiors, as well as a private pool and terrace. By this time, Jarrett was Habitat’s president.

undefinedIn 2013, the partners sold Kingsbury Plaza to the taxpayer-supported Teachers’ Retirement System of Illinois, or TRS, and other investors for $160 million, according to public records and interviews. By then Jarrett was working in the White House and played no decision-making role in the sale, her spokeswoman and others involved in the transaction said.

The GE pension fund received $67.2 million and the Habitat partners received $17.4 million – roughly an 80-20 split, records show. The remainder of the sales price covered the ongoing mortgage and remodeling costs.

Cook County land records indicate that Jarrett’s share of the sale proceeds was $1,855,320.

Jarrett’s capital gains from the Kingsbury deal were disclosed on her 2013 economic interest statement filed with the White House in a range between $1 million and $5 million.

Through her spokeswoman, Jarrett would not confirm or deny whether she received a carried interest in the deal, instead referring questions to Habitat.

Habitat President Matthew Fiascone confirmed to the BGA that the Habitat managers, which included Jarrett, received a carried interest because Kingsbury Plaza was sold for a profit above a predetermined price.

Another businessman involved in the development project – Michael Kavanau of HFF Inc., the commercial real estate services firm that arranged for financing of the construction in 2005 and played a role the 2013 sale – also confirmed the Habitat partners earned a carried interest fee, because earnings on the sale exceeded the goal.

A BGA analysis of public records suggests that Jarrett’s carried interest was over $1 million, which would result in a tax savings of at least $200,000.

The calculations are based on publicly filed land and mortgage records, Jarrett’s personal ethics disclosure form and interviews.

Land records indicate the Habitat group’s original investment was at least $2.5 million, a small portion of the $104 million required to build the project. Jarrett’s investment would be approximately $266,000, based on her 10.67 percent partnership interest in Habitat, as disclosed on her ethics form.

The sale allowed the GE pension fund to more than double its investment, from $30.4 million to $67.2 million, according to property records. Unlike Habitat, GE’s profit did not contain a carried interest because the GE fund was a limited investment partner and not the developer of the project.

Using the same profit ratio, Jarrett’s estimated investment of $266,000 would have more than doubled to about $590,000. By subtracting the latter figure from her sales proceeds of $1.8 million, to account for a profit on her investment, the BGA estimates that Jarrett received a carried interest of roughly $1 million.

The difference between the 39.6 percent income tax rate and the 20 percent capital gains rate on $1 million yields a tax savings for Jarrett of an estimated $200,000.

The BGA explained its calculation of the carried interest to Victor Fleischer, a University of San Diego law professor, an expert on the issue. He said that “given the available information” the estimate is likely to be “in the right ballpark.”

This story was written and reported by the Better Government Association’s Chuck Neubauer and Sandy Bergo. They can be reached at, or (312) 427-8330. The BGA’s Patrick Rehkamp contributed to this report.

A Chicago native, Sandy Bergo began her professional career as a reporter for the Chicago Reporter, worked as a writer and producer for WBBM Radio, and for 20 years, was a producer with Pam Zekman’s investigative team at WBBM-TV.

She has shared in local and national awards for her work. Her stories have exposed bad doctors, campaign finance irregularities and government waste of taxpayers’ money.

In 2001, Sandy moved with her husband, Chuck Neubauer, to Washington D.C., where she worked as a freelance reporter, television producer and a staff writer for the Center for Public Integrity.

For 10 years until 2019, she was the executive director of The Fund for Investigative Journalism.

During that time, she collaborated with her husband on investigative stories for the Better Government Association.

Sandy and Chuck have one son and two grandsons.

Chuck Neubauer is an award-winning investigative reporter who has a five-decade track record of breaking high-impact stories about public officials, from Chicago City Council members to powerful members of Congress.

He is currently based in Washington, D.C. after years of working in Chicago as an investigative reporter for the Chicago Sun-Times and earlier for the Chicago Tribune where he shared in a Pulitzer Prize with the late George Bliss for a series on abuses in federal housing programs.

He and his wife, Sandy Bergo, have spent the last 10 years doing freelance investigative stories as special contributors for the Illinois Answers Project and the Better Government Association. Their reporting has looked into the actions of politicians ranging from Ald. Edward M. Burke to former House Speaker Michael J. Madigan to former Rep. Bobby Rush to Gov. J.B. Pritzker. They have also reported on how leaders of the Illinois legislature skirted campaign finance limits and also on the generous pensions some Illinois lawmakers receive.

At the Sun-Times, Neubauer, along with Mark Brown and Michael Briggs, reported in the 1990s that powerful House Ways and Means Committee Chairman Dan Rostenkowski misused hundreds of thousands of dollars in federal taxpayer funds to purchase three personal cars, buy expensive gifts for friends and hire staffers who did personal work for him. Those disclosures were the basis for several counts in the federal indictment against Rostenkowski who pleaded guilty and served 17 months in prison.

Neubauer’s reporting also helped lead to federal criminal charges and convictions of former Illinois Governor Dan Walker, Illinois Attorney General William J. Scott and former Illinois State Treasurer Jerry Cosentino.

In 2001, he moved to Washington, D.C., where he worked for the Los Angeles Times and later the Washington Times, exposing conflicts of interests involving Senate and House leaders.

Neubauer began his career as the BGA’s first intern in 1971 before becoming a reporter.