Pritzker Strikes Deal to Sell Thompson Center
Governor JB Pritzker announced Wednesday he had struck a deal to sell the James R. Thompson Center in downtown Chicago to a private developer, claiming the deal would save taxpayers up to $800 million.
Governor JB Pritzker Wednesday announced a deal to sell the beleaguered Thompson Center in downtown Chicago.
From a news release:
Following the evaluation of submitted proposals, the State elected to move forward with a public-private partnership structure, which includes:
• An up-front payment of $70 million to the State for the purchase of the property
• The selected purchaser preserving and substantially renovating the JRTC
• The State purchasing and occupying approximately 425,000 sq ft of newly renovated, Class-A office space at the JRTC
• The State will save approximately $20 million a year for the next 30 years through operating cost reductions and lease consolidations alone.
• The redevelopment of the JRTC is expected to result in thousands of new construction jobs, new tax revenues for Cook County, the City of Chicago, and its sister agencies, while maintaining thousands of jobs and operations with heavy public interactions in the LaSalle Street corridor
“Today I’m proud to announce that for the first time, we’re taking a massive step forward with a plan that will result in the sale of the Thompson Center and that will save taxpayers $800 million,” said Governor JB Pritzker. “I came into office with a promise to manage state government resources more efficiently and to support local governments. By returning vital real estate in downtown Chicago to private ownership, tens of millions in revenue will be generated for Chicago Public Schools and for property taxpayers. This is a new era of responsible governance for Illinois – one that protects our taxpayers, and fosters the jobs and opportunities that working families deserve.”
From the beginning of the Pritzker administration, the Department of Central Management Services (CMS) not only prioritized completing the long-anticipated sale of the JRTC and the timely relocation of State offices and employees, it also focused on the realignment of the State’s real estate portfolio and looked for consolidation opportunities to maximize space utilization in state-owned and leased properties. This effort to identify opportunities for efficiency improvements, space consolidation and the cost avoidance of deferred maintenance repairs will result in over $800 million in taxpayer savings.
“The State can no longer afford to support unsustainable costs for the maintenance and operation of the JRTC or delay its disposition,” said Director of CMS Janel L. Forde. “This strategic public-private partnership allows us to retain a smaller presence in the property while partnering with an established development team to transfer significant financial risk and responsibility for the much-needed capital improvements at the JRTC to a third-party.”
CMS has been strategically preparing for the sale by planning practical relocation options for State tenants based on public interactions and operational needs of respective agencies, ensuring that the results of the extensive real estate and financial analyses yield the best value to the taxpayers of Illinois.
On May 3, 2021, CMS issued the RFP for the Sale of the JRTC. Two proposals were received by the deadline of October 8, 2021. CMS evaluated the technical proposals, interviewed the proposers, and requested a Best and Final Offer by December 8, 2021. Based on these evaluations, CMS determined that the proposal submitted by JRTC Holdings, LLC provided the best long-term value to the State and its taxpayers.
Due to prolonged deferred maintenance and delayed capital projects, the estimated cost to bring the JRTC into a state of good repair currently exceeds $325 million and is projected to increase to over $525 million, if not addressed by 2026. JRTC is costly to maintain with annual operating expenses of approximately $17 million, largely due to the building’s single-pane glass envelope. Under the proposed transaction the proposer will replace the building envelope and mechanical systems and make the necessary interior repairs to transform the building to a multi-tenant, mixed-use Class A office building.
As part of its due diligence efforts, CMS met with over 50 State agencies that occupy space in downtown Chicago, both at the JRTC and other leased office space, representing over 2,800 employees located in downtown Chicago. CMS worked to better understand these agencies’ physical space needs, public interactions, operational missions, and geographic location requirements and align their future office space in a manner consistent with CMS’ new space standards, made effective on September 1, 2020, and better reflect current national best practices. Through this lens, CMS determined that the State’s real estate footprint in most cases could be reduced by 20-40 percent.
In January 2021, CMS acquired 555 West Monroe building for $72.25 million as part of its effort to optimize the State’s real estate portfolio. By April 2022, approximately 1,500 State employees will be relocated to 555 West Monroe.
Prior to the start of the consolidation efforts, the State leased office space in seven properties in the Loop, at an annual cost of approx. $21.3 million in base rent and other maintenance and repair costs. Through consolidation opportunities the State will terminate six private leases by 2024 and expand partnerships in publicly owned buildings, resulting in additional savings.
Chicago developer The Prime Group is the buyer. More via the Chicago Tribune:
The state selected a company led by Michael Reschke, chairman and CEO of real estate developer The Prime Group, as the buyer from the two bids submitted this fall. Reschke’s JRTC Holdings is working with Jahn’s firm on its plan to revamp a building that has inspired strong opinions since opening in 1985.
The redevelopment plan calls for installing a glass curtain wall to separate the office floors from the the soaring atrium, which should alleviate many of the heating and cooling issues and noise problems the building has faced during its lifetime, Reschke said.
“That atrium will become the monumental entrance to the future office building, and it will be unlike any other entrance in the city, and for that matter in the country,” he said.
Selling the building will save the state, and taxpayers, an estimated $20 million per year over the next 30 years through consolidating office leases and reducing operating expenses, according to the governor’s office.
The new developers will not knock the building down, but will renovate it, making it more efficient and attractive to potential tenants. More from Crain’s:
After the building is renovated—tentatively slated for completion in 2024—the state will pay the Prime Group venture $148 million to buy back 427,000 square feet of offices it will occupy on floors 2 through 7 of the building. That means the state will have ultimately paid about $78 million in a move that gives it renovated offices, unloads the building's massive deferred maintenance costs—key to the savings Pritzker touted today—and gives the Prime Group venture control of about two-thirds of the property.
Michael Reschke of Prime Group said demolishing the building would have been "a travesty."
"We concluded that office was still the highest and best use," Reschke said. "We look at the problems that have plagued this building since 1985 when it opened. Those problems, we found, were very manageable," he said, even opportunities.
Among other changes, Prime intends to install a "new curtain wall" to reduce the building's famously high heating and cooling costs. The building's open atrium will remain a feature, but the current configuration is too noisy.
"People cannot have quiet enjoyment of their office floors above because the noise just reverberates. "Odors... security... and acoustics" are other issues created by the open atrium space that will also get resolved with a curtain wall, Reschke said.
The new atrium "will be unlike any other entrance in the city, or for that matter, the country."
The renovation budget is said to be a little under $300 million.
