Gov. Bruce Rauner’s plan to sell the hulking James R. Thompson Center in the Loop is caught up in the triangular finger-pointing found at the core of many unresolved issues in Illinois government these days.
The Republican governor blames Democratic Speaker Michael Madigan for standing in the way. Madigan says Rauner is being disingenuous and insists lawmakers are working on the idea. And Mayor Rahm Emanuel says a deal should be easy, but Rauner is the one making it unnecessarily difficult.
Political bluster aside, the reality is that selling the glass-and-steel structure — and the prime city block on which it sits — is complicated for reasons both political and financial.
To get near the $300 million Rauner claims the place is worth, he would need a major zoning change from City Hall to allow as much as four times the square footage currently allowed. That would require the cooperation of a downtown alderman who has never agreed to such a request.
Even then, the mayor’s team wants assurances the buyer will be capable of promptly tearing down the building and quickly putting up a new one, so the site doesn’t languish and become another Block 37, old main post office or Chicago Spire.
Beyond that, one of Chicago’s busiest CTA stops is in the Thompson Center, and Emanuel stressed Tuesday that he would not sign off unless the station remains open and the state or developer pays to build a new one, if necessary.
In addition, the property can’t be sold until Rauner reaches a deal to buy out long-term retail leases in the Helmut Jahn-designed building, which state preservationists have placed atop their most-endangered list.
Then there are the delicate politics involved on multiple levels.
In Springfield, lawmakers have to pass a bill to allow a sale, a tricky proposition at a gridlocked Capitol where issues can be derailed for reasons that have little to do with substance and much to do with the larger game of power players keeping score. In Chicago, the question is whether Emanuel and Rauner can set aside their publicly toxic relationship long enough to cut a deal.
“We’re talking about an extremely complicated commercial real estate deal that is made even more difficult by the engineering challenges on the site and is overlaid with the politics of the city of Chicago and the state of Illinois,” said Mike Hoffman, a Rauner aide leading negotiations for the state. “This is not a simple problem.”
State, city favor redevelopment
The 17-story, 1.2 million-square-foot building bound by Lake, LaSalle, Randolph and Clark streets opened in May 1985 as the State of Illinois Center, the pet project of the building’s eventual namesake, Gov. Jim Thompson. A 10-story red bow was unfurled in the atrium revealing a banner with Thompson’s favorite slogan for the new state government palace: “A Building for Year 2000.”
Long the center of love-it-or-loathe-it debates over the building’s space-age design, the Thompson Center became a symbol of state government’s ineffectiveness.
The original price tag of $89 million nearly doubled, even after significant cutbacks. A state audit accused the Thompson administration of “losing control” of the project and misleading the public about its cost. Thompson predicted the new center would become the nation’s most energy-efficient building, but instead its largely glass design and cost-cutting moves has made it expensive and inefficient to maintain, heat and cool.
As state government built up a backlog of billions of dollars in unpaid bills, its Chicago headquarters began to reflect the state’s financial condition, with cockroaches spotted skittering across the walls, duct tape holding together tattered carpeting, dingy exterior windows often not cleaned and panels from the building’s facade removed after a 600-pound hunk of granite crashed onto the Clark Street sidewalk in 2009.
Former Gov. Rod Blagojevich tried to sell the building, the Illinois Chamber of Commerce once pitched a casino for the site, and state employees complain of their workplace’s deteriorating condition and the noises and smells that echo and waft up the atrium from the food court below.
So it wasn’t a shocker in October 2015 when Rauner announced he’d like to sell the building, arguing the Thompson Center had become a financial morass requiring more than $100 million in deferred maintenance.
As the governor has renewed his push to unload the building in recent weeks, his aides now say the estimated maintenance costs are $326 million — which also happens to be about how much Rauner says the property is worth. The Rauner administration declined to provide a breakdown showing how such costs had tripled in a little more than a year.
The explanation is that since Rauner offered his initial $100 million estimate, the state hired a consultant who discovered more needed repairs, including a new heating and cooling system that could cost up to $80 million, said Hoffman, the Rauner aide in charge of the agency that oversees state facilities. Hoffman added that the building’s maintenance costs and poor condition have led the Rauner and Emanuel administrations to agree it should be sold and torn down, a point public officials previously had danced around.
“We all agree that a redevelopment needs to happen,” he said. “This is not the best use of the property for either the city or for the state.”
Deputy Mayor Steve Koch said the city recognizes the most realistic future use for the site.
“Nobody is buying that building to simply walk in the building and occupy it. They’re buying it to tear it down and build something else,” said Koch, Emanuel’s lead negotiator on the issue. “I think prior governors have hated the building just as much as Rauner does … but Rauner seems to have gotten more serious about it.”
$300 million property?
In pitching the Thompson Center sale to lawmakers, Rauner has said the state could expect to reap at least $240 million after $60 million in estimated expenses to vacate the property and relocate employees.
Hoffman said that’s based on financial studies conducted by consulting firms, work that has cost the state $305,000 to date, records show. The Rauner administration would not release the studies in response to a Chicago Tribune open records request. Hoffman said the state could keep the studies secret because they include proprietary information pertaining to a pending real estate deal — an exemption allowed under the state’s open records law.
One of the consultants, longtime Chicago developer Richard Stein, said his firm arrived at the $300 million value of the parcel by projecting that at least 3 million square feet of space could be built on the site at a value of $100 per square foot.
“The opportunity and the site are singular, unique and exceptional,” said Stein, chairman of RAS Development, known for developing Loop skyscrapers and McCormick Place expansions. “You’ve got a full block in the Loop, with the second-busiest CTA station in the city with direct access to O’Hare. That’s unique.”
Stein pointed to a pair of other recent real estate transactions to back up his estimate: the Catholic Archdiocese of Chicago selling its River North parking lot for $100 million and the sale of Tribune Tower on the Magnificent Mile to developers for $240 million. Neither site, he argued, offered as much space and opportunity as the Thompson Center parcel.
“I don’t think $100 a foot and 3 million square feet is unreasonable. Given competition, people will give whatever they think they can pay,” Stein said. “It will depend on the economic cycle and where we’re at, but I don’t think it’s overly optimistic and I don’t think it’s conservative.”
In its estimate, the state factored in $20 million for demolition, Hoffman said, but he and Stein acknowledged that they did not include the cost of keeping open a busy “L” stop during construction or building a new station.
While Rauner’s aides wouldn’t release the financial studies, they did share a one-page design summary that architectural firm Adrian Smith + Gordon Gill used to develop renderings at the state’s request. The two concepts: a 1,700-foot tower that would become the tallest skyscraper in Chicago or a cluster of three high-rises of varying heights — one residential, one office and one hotel.
The firm concluded the site could handle up to 4 million square feet of development but said the concepts were based on 3 million square feet.
Koch, the deputy mayor, said the current market and economics make it unlikely a new tallest building for the city would be built as Rauner’s office suggested. Even Stein, the state-hired consultant, said he didn’t think such a mega-tower could be financed.
“What’s it worth?” Koch said of the site. “There hasn’t been a square block in the Loop for sale in a long time. I think it’s a really interesting question, and when you talk to real estate people about it, they seem to be all over the map.”
While the topic may be a favorite one in Chicago’s real estate circles, the high-octane politics surrounding it mean most of those discussions are strictly behind-the-scenes. The Tribune contacted a dozen Chicago development and investment experts to evaluate the property’s value. All declined to talk on the record.
While the state has suggested the one-block property could handle up to 4 million square feet, it is zoned for only a little more than 1 million square feet — less than the Thompson Center’s current 1.2 million square feet. City zoning records show former downtown Ald. Burt Natarus decreased the zoning in November 1981 as the building was being constructed.
Ald. Brendan Reilly, who defeated Natarus in 2007, said his predecessor did that with several properties, taking away future development expansion once a project was approved. Under current zoning, Reilly said real estate experts have told him the parcel is worth $90 million to $110 million.
For the state to market concepts like a mega-tower or multiple high-rises, the Rauner administration would have to receive a significant change in the site’s zoning classification. Both the Emanuel administration and Reilly said they would allow residential and hotel uses to be added to the office and retail currently permitted there, but both were noncommittal on the major zoning increase Rauner is seeking.
The city’s zoning classifications set a limit for how much square footage can be built on a site. But in some cases, developers can buy space above that limit through Emanuel’s density bonus program, which uses a complex formula based on surrounding real estate values to determine how much developers pay for the right to build higher. Emanuel’s program sets aside most of that money for projects in economically challenged neighborhoods on the South and West sides.
Given the size of the Thompson Center site, two scenarios are most likely:
•An upgrade of two zoning classifications. That would allow a developer to build 1.5 million square feet and buy more space to reach a total of 2.3 million square feet.
•A boost of four classifications to the maximum allowed downtown. That would let a developer build 2 million square feet and buy as much additional square footage as City Hall will permit.
To market the site for top value, Hoffman said the governor’s office not only has asked the city for the maximum zoning option but also to guarantee the buyer could build up to at least 3 million square feet. In that case, Emanuel could collect as much as $50 million for his neighborhood development fund, according to a source familiar with how the payments are calculated.
The Emanuel administration, however, is not sold on that offer, two sources familiar with the negotiation said. The mayor’s team favors the first option: allowing a two-classification upgrade for a development that would top out at 2.3 million square feet.
At that level, Emanuel’s aides believe the city would be guaranteed at least $20 million in bonus fees, the sources said. They don’t believe the demand will be as high for a developer to pay more for extra square footage under the maximum zoning level.
The bonus payments are an important tool for Emanuel, who is working to rebuild his political support in predominantly African-American neighborhoods and views new development there as a key factor in that mission. Since Emanuel created the bonus program last year to benefit the South and West sides, the city has collected $3 million, and about $25 million more is expected once already approved projects break ground.
A big Thompson Center bonus would substantially increase what Emanuel has available to spend. As such, the state offered a deal in which the site’s developer would guarantee $20 million for the mayor’s fund, regardless of whether additional square footage is purchased, according to a source familiar with the talks.
So far, the mayor’s office has rejected that concept. Emanuel’s aides have been reluctant to agree to allow more square footage beyond the maximum zoning level without first seeing a developer’s specific plans, sources said. The state, though, would not market the site to developers until it has a zoning commitment from the city that it can use to persuade state lawmakers to approve a sale.
Koch declined to discuss zoning negotiations but suggested developers are familiar with the type of building heights Emanuel’s administration has allowed downtown. “It’s not like the Loop is an undense area,” he said. “I don’t think zoning is going to be the constraint on this.”
But City Hall tradition also calls for the City Council and mayor to defer to the wishes of the alderman on zoning requests in his or her ward, and Reilly stressed that in his 10 years as alderman, he has not approved a single increase in zoning density, known as upzoning. He said that’s because neighbors buy their properties based on the current zoning, and his philosophy is that future development should work within those parameters.
Reilly would not rule out a zoning increase for the Thompson property but said building 3 million square feet there is “a stretch.” He called the “quadruple upzone” the governor is seeking an “unprecedented ask.”
Even if Rauner got the maximum zoning level, Reilly said the city would not agree to let a developer build 3 million square feet without first approving specific plans. That process includes community hearings, traffic studies, agreements on open space and a range of other factors.
“The state can’t go get that density for a developer ahead of time. You can’t promise someone, ‘Hey. Buy this land and you get a 120-story tower,'” Reilly said. “That’s not how zoning in Chicago is administered. It is a negotiated, public process with me and my constituents.”
The multilevel “L” station, a major hub for six CTA lines, will make the site difficult to redevelop. The Clark and Lake stop is the city’s second-busiest station, with 5.9 million riders passing through the turnstiles last year.
Koch said the city would allow a new project there only if the state and developer agree to keep the station open and any new station would come at no expense to the city. Emanuel went public with that concern Tuesday, suggesting the state expected the city to cover the entire cost of a new station, which he said would “stick Chicago taxpayers with $100 million.”
Rauner spokeswoman Eleni Demertzis said the administration has advocated for the state, city and developer sharing the costs of any new station, adding that it was too early to specify what percentage would be covered by each.
In his comments Tuesday, Emanuel reiterated the position his aides have held in private negotiations for months: City Hall won’t put a dime toward a new station.
“If you sell it and it has to come down, who builds it? Who takes the cost? I’m not going to stick that on Chicago taxpayers,” Emanuel said. “The developer or the state has to do it.”
Stein, the state’s real estate consultant, said his firm did not include the cost of a new station in its $300 million value for the land. He said a new station could cost $25 million to $100 million, while Emanuel pegged the price at $80 million to $120 million. But Stein also said a developer could preserve and enclose the existing station at “minimal cost.”
The Rauner administration’s design summary suggested a new station could be part of Emanuel’s vision for high-speed rail linking the Loop to O’Hare International Airport. Two Emanuel spokesmen did not respond to questions about whether the site was under consideration for high-speed rail.
Emanuel aides also want assurances that the site is sold to a developer who will build quickly. They worry that the Thompson Center would be torn down and the site would remain vacant like the Chicago Spire, old main post office and Block 37, the large parcel of land City Hall bought in the late 1980s, razed and resold to developers only for it to sit barren for decades.
“We are not going to cooperate in a process that doesn’t give the maximum guarantee that whoever buys it actually does something there quickly,” Koch said. “We don’t want this to become a Block 37.”
How would the city guard against that? Koch said it would evaluate the developer’s finances by measuring how much the project is dependent on tenants and how much cash the firm has on hand versus how much has to be borrowed. Ald. Reilly, though, noted that City Hall can’t force a developer to reveal its assets.
The solution, Hoffman said, could be for the state to ask developers for proposals instead of auctioning the land to the highest bidder. That would let the state, with input from City Hall, evaluate the developer’s plans, and the competition could drive would-be buyers to open their books.
Before the state can sell, however, the Rauner administration must reach a deal to buy out the master lease for 70,000 square feet of retail space in the building, a contract with Winthrop Realty Trust and Marc Realty that Winthrop has said runs until 2034. Hoffman declined to say how much that might cost, and the Rauner administration rejected a Tribune open records request for the information, saying it was subject to attorney-client privilege. A Winthrop executive did not respond to requests for comment.
The state also would have to move 20 state agencies and 2,200 employees out of the building. The Rauner administration also declined to estimate how much that would cost. Hoffman did say the state’s total estimate for leasing new offices, improving existing state office space and buying out the retail lease is $60 million, though he declined to provide a breakdown.
Not everyone is as eager as the governor to see the Thompson Center torn down. Landmark Illinois recently placed the postmodern building at the top of its list of the state’s most endangered historic places.
Jahn, the renowned architect who designed the building, has proposed a plan to save the structure and its atrium by putting up a 1,340-foot hotel and residential skyscraper alongside it. But many see such “Save Thompson” proposals as a long shot, said Stein, the state’s real estate consultant.
“There’s no chance of keeping it — unless your name is Helmut Jahn, and I like Helmut,” Stein said. “But there is no redeeming economic value to saving it.”
Perhaps Jahn’s best hope is a dysfunctional Springfield, where feuding between Democratic legislative leaders and the Republican governor often means little gets done. To sell, Rauner needs the approval of lawmakers, particularly Madigan, the powerful longtime House speaker.
In March, Rauner told reporters to ask Madigan why he was delaying the Thompson Center sale. Madigan called Rauner’s remarks “disingenuous” and said he had “publicly acknowledged a desire to work” on selling the building, but issues still had to be worked out with the city. Emanuel then blamed Rauner for the lack of progress.
“This should not be this tough, but like everything that is worked on in Springfield or with the governor, it becomes too tough,” Emanuel said. “I just think — try to work something out.”
That’s exactly what Emanuel and Rauner’s negotiators say they’re trying to do at the staff level, and there are political gains to be had for both sides. The governor would get a much-needed win ahead of a 2018 re-election bid, while Emanuel could secure future tax revenue for the city and money for his neighborhood development fund.
It’s the fractured relationship between the onetime vacation friends that’s the wild card.
Emanuel and Rauner often snipe at each other during respective news conferences. Atop the mayor’s list of grievances is Rauner’s December veto of $215 million in Chicago Public Schools teacher pension funding, a move that’s left Emanuel scrambling to fill the hole.
“How about paying the teachers’ pensions?” Emanuel said Tuesday when asked about a Thompson Center deal. For his part, Rauner has suggested the mayor help him secure cost-saving pension reform statewide, a key part of the governor’s agenda.
Despite the public bluster, Koch, the deputy mayor, said the two sides are making progress on the details behind the scenes.
“There is a lot of complexity in the relationship between the state and city right now, and that’s a whole separate path,” he said. “I’m trying to get this to a point where we know what a resolution would be and then others can decide what to do about it.”
Hoffman, the governor’s point person, said he, too, is convinced a deal can be reached. “These are very productive talks we’re having with the city,” he said. “I’m optimistic.”
Asked why Rauner hadn’t displayed the same sense of optimism, Hoffman offered a quick response: “I’m not going to comment on that.”
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