By Peter Slevin
Washington Post Staff Writer
Sunday, December 17, 2006; A06
CHICAGO. Dec. 16 -- Antoin "Tony" Rezko is a political insider, an energetic Chicago dealmaker and campaign fundraiser often in the headlines for being on the wrong side of good government. Indicted in October on influence-peddling charges, he also has a habit of befriending prospective political stars.
One of them was Sen. Barack Obama (D-Ill.), who was offered a job by Rezko in the early 1990s while a top student at Harvard Law School. Obama did not take it, but over the years, the two men stayed in touch, and Rezko backed Obama's successful 2004 U.S. Senate campaign, raising money and contributing his own.
In June 2005, in what Obama now describes as a "boneheaded" mistake, Obama and Rezko's wife bought adjacent properties on Chicago's South Side, closing the deals on the same day. Seven months later, wanting a bigger yard for his $1.65 million house, Obama bought a slice of the Rezko property for $104,500.
After news of the deal broke last month in the Chicago Tribune, Obama said he had erred by creating the appearance that Rezko had done him a favor by selling him a portion of the lot. For the first time since he entered the national spotlight, the 45-year-old freshman senator found himself on the defensive, discussing a personal decision he had come to regret.
"There's no doubt that this was a mistake on my part. 'Boneheaded' would be accurate," Obama said in a telephone interview Friday. "There's no doubt I should have seen some red flags in terms of me purchasing a piece of property from him."
Obama recently donated to charity $11,500 that Rezko had contributed to his federal campaign account.
There have been no allegations that Obama, whose political fortunes are soaring as he mulls a run for president, broke the law or committed any ethics violations. He said he has done no government business with Rezko, who is facing charges in two unrelated criminal cases.
But leaders of Chicago watchdog organizations describe Obama's behavior as a surprising error in judgment, particularly for a politician noted for his tactical skills, his ambition and his support of state and federal ethics legislation.
"It's disappointing because there has been speculation about Tony Rezko, and whether he was crossing ethical lines, for a number of years," said Cynthia Canary, director of the Illinois Campaign for Political Reform.
Jay Stewart, executive director of Chicago's Better Government Association, said, "Being a lawyer, he did everything by the book, but there's a higher expectation of him."
To Chicago political observers, it made sense that Rezko tried to get close to Obama. A Syrian-born businessman whose fortunes seemed to rise and fall with his latest deal, Rezko was known for cultivating politicians, including Illinois Gov. Rod Blagojevich (D) and Rep. Luis V. Gutierrez (D-Ill.).
Rezko created a real estate development company and operated dozens of Chinese eateries and pizza restaurants. After Blagojevich rode into office in 2002, Rezko emerged as a friend and close adviser. He recommended people for significant state jobs and, a federal grand jury charged, soon tried to shake down investment firms that wanted to do business with Illinois.
In one instance, Rezko and Stuart Levine, a member of two state boards, allegedly demanded that a firm seeking investment business pay a $2 million fee to a middleman or give $1.5 million to the campaign of "a certain public official," later identified as Blagojevich.
The company refused. Levine pleaded guilty this fall to federal charges and is cooperating with authorities. Blagojevich, who has not been charged, denied wrongdoing and accused Rezko of betrayal.
Chicago authorities alleged last year that Rezko set up a front minority company to win permission to open three Panda Express outlets at O'Hare International Airport. His nominal partner was Jabir Herbert Muhammad, son of the late Nation of Islam founder Elijah Muhammad.
Rezko and Muhammad settled the matter, which became public in 2005, months before Obama's house purchase. Without admitting wrongdoing, they agreed to end their O'Hare operations and were disqualified from the city's minority business program.
When Obama and his wife, Michelle, a hospital executive, decided to move with their two young girls from their Hyde Park condominium, they chose a spacious three-story Georgian revival home on a tree-lined street in the Kenwood neighborhood, not far from the University of Chicago. The owner had listed the house -- nearly 100 years old, with four fireplaces and a wine cellar -- and an adjacent lot as separate parcels.
The Obamas purchased the house, which had been on the market for several months, for $300,000 below the list price. On the day they closed, Rezko's wife, Rita, closed on the 9,000-square-foot lot next door for the asking price of $625,000.
Obama said Rezko, who knows the neighborhood, was one of several people he called for advice on the real estate market. Rezko told him he knew the developer who renovated the house. In a later conversation, Rezko said he intended to buy the empty lot and build on it.
Later, the Obamas bought a 10-foot-by-150-foot piece of the lot for $104,500. An appraisal put the value of the strip at $40,500, a spokesman said, but Obama considered it fair to pay one-sixth of the original price for one-sixth of the lot.
"It wasn't something we needed to have," Obama said. "It was something I thought would be nice, if it worked economically for him."
Rezko and Obama collaborated to build a fence separating the properties, and Obama has paid his landscapers to mow the lawn on the Rezko lot. Obama, who said city code required Rezko to fence the lot, paid for legal and design work to ensure it was done properly, while Rezko paid for the fence.
Obama said that he was unaware of Rezko's brewing troubles in 2005 and that Rezko sought no favors. He described himself, after eight years in the Illinois Senate and two on Capitol Hill, as careful to live within strict ethical boundaries -- refusing to allow lobbyists to pay for meals, for example, and reimbursing people for golf outings.
"I'm very proud of how I've conducted myself during the entire time I've been in public service," Obama said. "My hope would be that people come away saying, 'He's not perfect, but he owns up to his mistakes and tries to correct them as quickly as possible.' I hope they look at the entire body of my public service and would note that this is the first time anything has ever come up."
Stewart, of the Better Government Association, said Obama took responsibility and did not shy away from questions. If there are no further revelations, he said, "it's going to wind up being a footnote," but "if anything further comes out, it's a different story."