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Development Goes Mega In Chicago, And So Does The Effort In Getting It Done

2022 might well go down as the year of the megadevelopment in Chicago, with multibillion-dollar projects on both the city’s North and South sides set to dramatically change the landscape and lives of its 2.7 million residents. 

From Sterling Bay’s Lincoln Yards being built on 53 acres of riverfront amid some of the city’s most iconic neighborhoods to The 78, Related Midwest’s 62-acre vision for the riverfront area between the South Loop and Chinatown, and the $7B Bronzeville Lakefront project near McCormick Place, the city is poised to add more than 41M SF across about 217 acres over the next couple of decades, CoStar estimates.

The projects are ambitious and costly, totaling about $20B. According to panelists at Bisnow’s Chicago State of the Market event Nov. 16 at 600 West Chicago, they are also complicated and not for the fainthearted.

Honigman's Kristen Boike, Sterling Bay's Keating Crown, Savills' Robert Sevim, Pepper Construction's Jake Pepper and Level-1 Global Solutions' Randal Gruberman

“Whether we’re talking over 5M SF, over 10M SF or 15M SF, I think one common denominator is they’re risky and they're not a straight line,” Sterling Bay Managing Partner Keating Crown said, adding megadevelopments typically include multiple developers working from different bases and doing vastly different developments to bring a vision to fruition.

As an example of that risk, Crown pointed to Sterling Bay’s experience in Lincoln Yards, where it plans a 53-acre mixed-use community on formerly industrial property along the North Branch of the Chicago River.

The company began buying land vacated by the former A. Finkl & Sons steel plant and other nearby properties in 2015, and at various points along the winding road to today, it was envisioned as the site of Amazon’s HQ2 and a 20,000-seat soccer stadium as business decisions, city government wrangling and community group pressure shaped and reshaped the project.

In 2019, Sterling Bay won city approval for a sweeping $6B plan to include office, residential and hotel towers, as well as restaurants, retail and entertainment space. It was also controversially awarded up to $1.3B in tax increment and other financing to help cover infrastructure costs that Sterling Bay would pay for upfront and be reimbursed for over time by TIF funds raised through new developments in the area.

Sterling Bay has spent tens of millions of dollars on environmental remediation, including clean-up of 36 underground leaking storage tanks, millions of gallons of contaminated water and thousands of tons of contaminated soil since then, Crown said. Lincoln Yards’ first building, 1229 West Concord, a 320K SF life sciences facility, is set to deliver in mid-January, he said, “and we're going to continue marching north” with new development.

“But that's also part of the risk because so much of that infrastructure has to happen upfront in order to deliver the buildings and the parks and the Riverwalk,” he said, underlining that the company won’t be reimbursed for roads, bridges, public transportation improvements and other infrastructure until developments go up.

“We had to find a financing source to build the infrastructure upfront, and we have that source in front of the city,” Crown said. “All we need them to do is sign off on it. If we get there and they sign off on it, we should have four or five cranes in the air in the first quarter.”

CohnReznick's Patrick Olerich, Siegel Jennings' Molly Phelan, 33 Realty's Sean Connelly, Pearlmark's Douglas Lyons, Next Realty's Eteri Zaslavsky and Waterton's Rick Hurd

Crown called working with the city a sometimes rewarding, sometimes frustrating process. Sterling Bay is in daily contact with the Chicago Department of Planning and Development, which he said is full of smart, driven people who are in occasional disagreement with his team.

“At times we think that things could move a little faster, permits could move a little faster,” he said. “But there are also agendas that we're not privy to and other things going on. At the end of the day, better projects spit out the other end.”

The same can be said for managing community needs and desires, said Crown, who joked he was caricatured as “mad dad” at one community meeting attended by some 900 people. Sterling Bay has participated in several hundred community, small-group and individual meetings through the process, dealing with pushback on everything from its TIF agreement with the city to a since-scrapped plan for mega-promoter Live Nation to operate a $5B entertainment district at the site.

“Community engagement is key … and early on, I wanted to please everybody, I wanted to get some consensus and move on,” he said. “Unfortunately, that's never going to happen. So I think you need realistic expectations going in. People don't like change, so that was a learning experience for me.”

In the end, though, Crown said good ideas came out of the meetings, and he urged those who come after him to keep an open mind.

Gould & Ratner's Robert Reizen, Cyclone Energy Group's Benjamin Skelton, Clune Construction's Liza Jessen, Vermilion Development's Matt Havey and LCI Development Partners' Chad Broderick

Then there is the tenant perspective to keep in mind, said Robert Sevim, vice president of Savills, which has been a consultant on The 78. That means projects must offer a high degree of confidence things get done on schedule, in order and as expected.

“When a tenant is considering a megadevelopment, there's a lot of thought that needs to be lent around the certainty of delivery of the infrastructure and the baseline around what are the phases of buildings that are going to be assembled so that that live-work-play environment is delivered, even if it's piecemeal, [and has] some certainty related to it,” Sevim said.

“Milestones, timelines and having the ability to feel very confident in delivery is a very big deal. Tenants could shy away if they don't feel that there is a high level of that certainty embedded in the process.”

When it comes to which ongoing Chicago projects qualify as megadevelopments and which don't, panelists were unanimous that Lincoln Yards and The 78 fit the bill. The Obama Presidential Center, The James R. Thompson Center and the Old Post Office don't, even though several cited them as important and potentially defining projects for the city. 

There was agreement as well that the $1.7B Bally’s Chicago casino and hotel complex, set to rise on the 30-acre site of the former Chicago Tribune publishing center, is also not a contender, with panelists remarking it offers too few elements, is in the wrong location and has high potential for traffic nightmares ahead.

Xfinity Communities' Walid Matarieh, Cresa's Allen Rogoway, Parkside Realty's Barbara Schenberg and Ryan's Mike Abbatemarco

Contractors define megadevelopments as those above the $100M mark, Pepper Construction Executive Vice President Jake Pepper said, though he said he believes a megadevelopment is a project that requires careful, long-term coordination among multiple competing contractors. For Sevim, megadevelopments most closely resemble neighborhoods of carefully integrated office, retail, entertainment, parks and greenery projects created whole cloth instead of organically.

Projects “may be large scale, they may be very, very significant in size, and even significant in cost, but if they don't constitute that true live-work-play intent, then in my mind, they're not megadevelopments,” he said. “It needs to have the intent of a neighborhood and almost be a city within a city.”

Randal Gruberman, principal and chief technology officer for Level-1 Global Solutions, said megadevelopments are also phased over years with a built-in understanding that communities and technologies will evolve over the life span of a project and beyond.

“We try and think five years ahead, 10 years ahead,” Gruberman said. “We won't be able to see into the proverbial crystal ball from an infrastructure perspective and know exactly what the requirements for whatever systems are going to go into a building, so buildings need to essentially act as an operating system for multiple technologies to come in. Then they need to work together in order to create efficiencies, to create security, to create betterment for those occupants who are in the building.”