How do I take over two brothels owned by the minor faction, The Midnight Federation in Chicago's Near North Side???

[Triumph Jordi]

Hey Devious666, when you are peaceful with Minor Factions you can enter their Rackets and Ambush them, before committing to an attack you'll be prompted to Declare war. Otherwise you can also declare war through the Diplomacy screen. Just find the Minor Faction, tab to the interactions and select Declare War.

 

[Triumph Jordi]

How do I enter their racket and ambush them. When I'm not at war with them, if I enter their racket, I enter and there is no combat.

As you can see in your screenshot, you can press 'Control' at pretty much any moment to go into combat and start an ambush.