After years of negotiations, delays, false starts and, most recently, a proposal for a dramatically downscaled development, the city has pulled the plug on the star-crossed Block 37 project and will take back its heart-of-the-Loop site, the Daley administration announced Wednesday.
After the land–bounded by State, Dearborn, Randolph and Washington Streets–is acquired through negotiations or, if necessary, a court fight, the city will ask new developers to compete for the right to build on the site, as the quest for a top-quality project goes back to square one, officials said.
Wednesday’s announcement underscored the city’s deep frustration in trying for more than a decade to develop one of its most prime and visible parcels, a task that has defied efforts even as other major projects have been proposed and completed.
Publicly, aides said Mayor Richard Daley, on vacation Wednesday in Ireland, was “very disappointed” with the project’s demise. Privately, noting that the mayor does not like to officiate at groundbreakings that fail to produce new buildings, they said he was angry.
The most recent development proposal by FJV Venture, Block 37’s owner, “is unacceptable,” declared city Planning Commissioner Alicia Berg. “State Street deserves better and the people of Chicago deserve better.”
Though sources close to the development team contended that City Hall shared blame for the project’s demise, city officials put the onus squarely on FJV, the joint venture that bought the key piece of land on Block 37 from the city for $12.5 million in the late 1980s. It then acquired three adjacent properties to make way for what was supposed to be a huge project that would help anchor a reviving State Street.
After a series of setbacks over the years, FJV announced plans for a $251 million complex in April 2000, when the economy was booming, the real estate market robust and financing available. But the joint venture was unable to get the project under way–in part because the city demanded new architectural plans–before the economy’s recent downturn.
“The fact that we have gone through such a great cycle and it didn’t happen really points to the development team,” Berg said. “We had faith in them, and they really let us down.”
Neil Bluhm, president of JMB Realty Corp., a key member of the FJV team, declined to comment, but real estate sources said that after years of wrangling with city officials, Bluhm was almost relieved to be rid of the challenging project.
The plan unveiled last year called for a five-story building with nearly 400,000 square feet of retail space, including a Lord & Taylor department store, and a connected 39-story tower with a 357-unit Marriott Suites hotel topped by 350 condominiums. Daley agreed to provide $39.5 million in city subsidies for the project.
But in recent weeks, the development “has been hampered by revisions, recalculations and has gone absolutely nowhere,” Berg said. “The final straw occurred this Monday when FJV presented a dramatically scaled-down version … just a retail box. There are no compelling architectural features, no uses that encourage pedestrian activity, almost nothing to improve or intensify the Loop experience.
“And for this, the developers are asking the city for nearly $40 million in taxpayer money to offset their costs,” Berg said. “It is not going to happen.”
Earlier proposal criticized
Sources close to the developers asserted that the city-imposed requirement to revamp the project’s design resulted in a critical delay.
Last year’s plan by the New York architectural firm of Kohn Pedersen Fox–which the sources contend was handpicked for the development by the Daley administration–was widely criticized and later withdrawn in favor of a new design by Chicago-based Solomon Cordwell Buenz.
During the nine months it took to revamp the architectural plan, real estate financing, particularly for hotels and residential projects, tightened as the economy worsened.
Berg said the condominiums remained an option, but because of a financing requirement that a percentage be “pre-sold” before construction could begin, “it would be March 2002 before they would even be able to tell us if that was moving forward.”
“That was very unacceptable, given the ebb and flow of this project,” she said.
“We’re very disappointed with the city’s decision,” said Michael Lerner, president of Chicago-based MCZ Development Corp., which would have been the co-developer of the condominiums. “We worked very hard to make this project go.”
City officials have had tentative discussions with FJV about acquiring Block 37 for less than the $39.5 million that had been set aside for the development team’s subsidy, Berg said.
The city’s outlay on the property has already been considerable. It paid $46.5 million to acquire the land and demolish buildings on the biggest portion of the site before selling it to the developers for $12.5 million.
Whether a negotiated settlement proves possible remains to be seen. City Hall sources said FJV was seeking a deal in which it would be compensated for the land’s value and reimbursed for at least some of the carrying costs incurred over the years.
Sources said that another development group conceivably could buy the property from FJV and then negotiate with the city on plans for a new project.
City praised for decision
G. Brent Minor, chairman of the State Street Commission, endorsed the city’s decision to start over.
A few years ago, the scaled-down version of the project “would have been acceptable due to the condition of State Street,” he said. “That is no longer true…. We have a great product out there today.”
“This venture has been with this a long time,” said Martin Stern, a real estate executive and vice chairman of the Greater State Street Council. “They get wedded to one particular idea and it becomes very hard to take out a new piece of paper and start to look at it fresh. I think this is the right move on the part of the city.”
Chicago developers as well as those from other cities will be welcome to compete to build on Block 37, officials said.
“Because it’s such a fine location, it is really the best piece of retail real estate in the Midwest. There’ll be plenty of interest in it,” said retail developer James Klutznick, a principal with Klutznick-Fisher Development Co.
Klutznick and his developer brother Thomas in 1999 tried unsuccessfully to persuade the city to regain control of Block 37 to clear the way for a new team.
