Chicago has become one of the many major cities nationwide whose downtown office market has been negatively affected by the pandemic and the associated increase in remote work. To boost development in its downtown core, the city of Chicago recently announced that it will offer $150 million in subsidies to real estate developers. The move will help develop more than 1,000 apartments in four separate adaptive-use developments.
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“These transformative projects within the [Chicago] Loop signify more than a revitalization of space; they embody our city’s dedication to inclusivity and growth,” Mayor Brandon Johnson said in a statement. “By creating more than 1,000 homes, including more than 300 affordable units, we are investing in the futures of countless Chicago families, and keeping our Loop community a welcoming hub for all.”
Developer Quintin E. Primo III, founder of Chicago-based Capri Investment Group, has been focused on redeveloping downtown—in particular, the Loop. His company, along with Michael Reschke’s The Prime Group, purchased the 1.3 million-square-foot (121,000 sq m) Thompson Center two years ago for $105 million while concurrently entering into a build-to-suit agreement with Google.
The deal will let Google acquire the redeveloped project upon completion. As a result of his experience, Primo is applauding the new subsidies.
“I think it’s an extremely important initiative for the Central Loop of downtown Chicago, specifically the LaSalle Street corridor,” Primo says. “The Thompson Center building, under a build-to-suit for Google by Prime/Capri, will be a catalytic change [for] the overall downtown market. But that catalyst, I believe, needs additional support from the city.”
He says that essentially the LaSalle tax increment financing (TIF) assistance will help provide subsidized capital to property developers to foster affordable housing projects. Primo sees the initiative as a game changer.
“I think that the LaSalle program, in addition to what’s happening at the Thompson Center, really will be quite transformative for the central Loop and will [affect], I think, favorably the . . . downtown office and commercial markets,” Primo adds.
Tax increment financing
Tax increment financing (TIF) would guarantee that at least 319 of the planned units would be rented at affordable rates, according to the mayor’s office. The four developments affected include 111 West Monroe Street, where Prime/Capri would build 345 units, with 105 of them being affordable, in two adjacent buildings through the use of $40 million in TIF funds for the approximately $200 million project. In addition, four percent low-income housing tax credits are also being proposed, as are a federal loan, tax exempt bonds, and historic tax credits for the project, which would also include a 228-room hotel. A city landmark designation is also a possibility for the development.
Another project, at 208 S. LaSalle Street, in a century-old city landmark, would include 226 units, with 68 of them being affordable, while employing $26.2 million in TIF funding for the $122.7 million Prime Group project.
A $130.2 million development in a high-rise from real estate development and investment firm Golub & Co. LLC and American General Life Insurance, at 30 N. LaSalle Street, would yield 349 units, 105 of which would be affordable, through $57 million in the funds from the city.
The fourth project—a $64.2 million development by Campari Group and located at 79 W. Monroe Street, in the 1913 Bell Federal building—would get eight floors of the building repurposed into 117 residences, 41 of which would be affordable through the use of $28 million in tax increment financing. The building’s famous “Weather Bell” sign would also be restored as part of the project, via a city of Chicago landmark designation, according to city officials. Affordable units in each of the developments would be set aside for renters earning an average of 60 percent of the area median income—around $53,000 for two people.
Chicago’s Farzin Parang, executive director of Building Owners and Managers Association of Chicago, says news of the developments is a good start for the city. The office market in downtown Chicago is experiencing “an unprecedented crisis as tenants continue to shrink or abandon” office space in the Windy City, according to Parang.
“The downtown office vacancy rate has soared to a record high of 24 percent, with bank foreclosures and distressed sales making frequent headlines,” Parang says. “Although building transactions have slowed considerably, those few that sold in the last year were at steep losses of 50 to 89 percent. Programs [such as] LaSalle Street Reimagined are crucial for revitalizing our downtown.”
However, other steps must also be taken to invest in additional programs, such as public transit and public security efforts, as a means of motivating local residents and employees to return to downtown Chicago—an outcome that, in turn, would help boost the economy, Parang adds.
Although downtown Chicago has suffered as a result of the pandemic, office buildings on LaSalle Street and in the Central Loop were experiencing a downward trend that actually predated Covid-19, according to Caitlin Ritter, research director at Transwestern Real Estate’s Chicago office. As such, Ritter is convinced that the office market “may have been able to correct itself without subsidies, if Covid had not come along.”
Despite this opinion, Ritter says it is not yet clear whether the subsidies will actually be enough, but she sees it is a good thing that the funds will increase housing inventory overall, including affordable housing, which is an urgent requirement for the city.
“I do expect the subsidies to have a major impact,” Ritter says. “It will, A, take a good portion of obsolete office inventory out of the market, which will reduce the vacancy rate; and B, add residents to the downtown area, which will help it become more of an 18-hour live/work/play environment and support street-level retail and activity, which would also make the area more attractive to office users.”
Helping unhoused individuals
Primo also sees the addition of more residential options as beneficial in helping unhoused individuals. He has long been a staunch advocate of assisting the homeless. His father, a church bishop, enlisted his son’s prowess when the elder Primo envisioned a center to help the city’s homeless populace. Known as the Primo Center, it is now one of the largest providers of housing and health services in Chicago.
“It’s as much a homeless problem as it is a housing problem,” Primo says, referring to conditions downtown. “There are not enough deeply affordable units and homes available to rent or own, and so, by creating as many as 300 new affordable housing units, this [shift] will help ease some of the supply issues that [this] city and other major cities across the United States have suffered. So, I do think it will favorably [affect] lower-income households, as well as the homeless.”
Chicago’s Community Development Commission voted in favor of all four developments last month. The projects still need to be approved by the Chicago City Council.
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