With Block 37 finally getting off the ground, State Street could once again become that Great Street.
Under orders from the city to bring “unique” retail to the mixed-use complex, Joseph Freed and Associates, the third developer in the project’s long and troubled history, has been courting high-end brand names, stores including Apple, Coach, Puma, Kate Spade, Lucky, Kenneth Cole, to name a few, according to sources familiar with the project.
It is an ambitious agenda. Once Chicago’s premier shopping district, State Street lost its cachet over the decades, enduring a shopping exodus to the suburbs in the 1960s and 1970s and then a misguided attempt to turn the gritty street into an open-air mall in the 1980s.
Today, State Street is home to rows of discount merchants and popular-price chains such as Sears, TJ Maxx, and, as of last month, Loehmann’s. Convincing high-end retailers that the time is ripe for them to put down stakes on State Street is a tall order.
But if the plan works, the four-story indoor shopping mall has the potential to change the face of State Street and cap a downtown revival that has brought empty nesters, urban professionals, students and tourists to the Loop long after offices have closed.
“Block 37 is really the site that has kept a lot of retailers on the sidelines,” said Ty Tabing, executive director of the Chicago Loop Alliance and former assistant commissioner at the city’s planning department.
It’s been decades since the project was first envisioned, and it will still be 2008 at the earliest before parts begin to open. Meanwhile, retailers are still circling rather than committing, according to brokers, raising the question of whether the long-intended vision of a kind of Mag Mile South can succeed.
Indeed, retailers have been slow to commit to the mall. Six months after taking over the project from the now-defunct Mills Corp., Freed has signed one tenant, David Barton Gym.
And luxury movie house Muvico Entertainment LLC signed a letter of intent to open an 800-seat, seven-screen movie complex, Michael Whalen, president and chief executive of the Ft. Lauderdale-based company, told the Tribune last week.
Freed declined to comment on the slow progress. But people familiar with the project site several obstacles.
Asking rents of $100 to $150 a square foot at the mall are higher than State Street is used to. The mall has unconventionally shaped spaces that in many cases require retailers to spend time and money retrofitting their standard store designs. And the credit crunch has sparked an industrywide pullback in retail expansion, making already cautious retailers more hesitant to set up shop in untested territory.
“Nobody really wants to be the first to flock to these things,” said Ross Glickman, chairman and CEO of Chicago-based Urban Retail Properties, who was involved in the project during the 1990s under a previous developer. . “I would be surprised if those price points would go to State Street.”
Tough to be unique
Another challenge facing Freed is that attracting so-called unique retailers isn’t a unique idea.
Water Tower Place on North Michigan Avenue is in the middle of a campaign to move away from its suburban-style mall roots and bring in stores and restaurants that can’t be found in every mall. And the project must compete with more-established trendy neighborhoods that already have a track record for viable upscale shops.
“Chicago has been a very good market for retailers, but rents have started to escalate and, unfortunately, until someone goes in there and does the business, it’s going to be a hard sell,” said Alan J. Barocas, an Atlanta-based retail consultant and the former head of Gap Inc.’s real estate department. As a retailer, “it’s tough to go into a real estate committee with triple-digit rent unless you feel 100 percent comfortable the store will succeed. The vast majority of retailers aren’t ready to take that leap.”
Over the past two decades, Harrods, Target and Crate & Barrel are just some of the retailers that have looked at going into the project.
In its current iteration, the project at 108 N. State St. includes an office complex, hotel and a CTA station that would shuttle travelers to O’Hare and Midway airports. The retail portion comprises 400,000 gross square feet, of which 280,000 square feet is leasable.
Freed declined requests for an interview. But in an e-mail the Palatine-based developer said, “Since we purchased the 108 N. State Street project in April 2007, we have been refining the project and initiating the leasing process. Everyone passing the site can see the tremendous progress being made in the construction. We are also making progress with the leasing effort. We are committed to the strategy of leasing from the top down in the project — a tactic that has been extremely successful in other projects.”
In addition, Paul Fitzpatrick, senior vice president of development at Freed, told the real estate trade magazine Heartland Real Estate Business last month that Freed is “pushing for full-price, fashion-forward retail tenants” along with “new concepts that have not been seen in Chicago yet.”
‘The Billion Dollar Hole’
The history of Block 37 is a case study in urban planning gone wrong. The late Mayor Richard J. Daley envisioned a master plan to breathe new life into the Loop, and he wanted the jumble of office buildings, theaters and pool halls that occupied the block across from Marshall Field’s razed.
In the 1970s the city got the legal right to declare several blocks, including Block 37, “commercial blight.” In 1989 the bulldozers arrived, demolishing blocks of buildings including the now infamous Block 37.
The 2.7-acre parcel remained empty since then, except for a ComEd substation and the occasional ice rink and outdoor arts and craft markets.
“It was a wound in the heart of this great city,” said Ross Miller, an English professor at the University of Connecticut and author of the 1996 book “Here’s the Deal: The Making and Breaking of a Great American City,” a detailed account of the wheeling and dealing behind the project. “Now it’s a covered-up wound. The great forgetfulness has begun.”
By Miller’s estimate, hundreds of millions of dollars have been wasted on projects over the years. The BBC went so far as to title its documentary film about Block 37, based on Miller’s book, “The Billion Dollar Hole.”
Over the years, some of the city’s most prominent architects and real estate developers have been connected with the project. The first group of developers — JMB Realty Corp., Metropolitan Structures and the Levy Organization — never got the project off the ground.
The city eventually took the land back and brought in Mills, but the project soon came to a halt when the Chevy Chase, Md.-based developer ran into financial trouble and was eventually sold. Freed took the project over from Mills in April.
“It’s a complicated, expensive project,” said David Stone, president of Stone Real Estate Corp. in Chicago. “I don’t think it should be upscale or can be upscale. But it could be Middle America.”
Store types mix more easily
It is generally believed that Coach would avoid the mall because it has one of its largest in-store shops in the nation across the street on the first floor of Macy’s. Apple, on the other hand, is believed to be a viable tenant who would most likely take space on the first floor with an entrance on State Street.
Apple and Coach spokeswomen both said they have “no plans” to open at the mall.
Real estate developer Jim Klutznick said discounters and high-end stores coexist easily these days, and State Street could fit right into that trend. Even the ritzier North Michigan Avenue across the river houses everything from H&M and the Gap to Louis Vuitton and Chanel.
“That’s what retailing is today, a mix,” said Klutznick. “It’s a more democratic country in that regard.”
Muvico’s arrival bodes well for the project and signals the appeal the rising demographics in the neighborhood has with potential tenants. The movie house’s CEO Whalen was sold on the affluent population surrounding the theater, a necessity if he’s going to succeed at charging $13 to $15 for a reserved weekend ticket.
The average household income within one mile of the project is $107,164 and 20 percent of the residents in the radius earns more than $150,000 a year.
“The retail market right now has become a bit dicey and a lot of retailers are pulling in their horns,” said Paul Vogel, principal at Realty Development Research Inc., a Chicago-based retail real estate consulting firm. “They’re all being much more cautious right now. If [Freed] can get a good lead tenant committed, that certainly would help them push things along. The market isn’t dead, just not as vibrant as it was a year ago.”
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smjones@tribune.com
