City to borrow millions to buy Michael Reese Hospital
Rolling the dice that a depressed real estate market will come roaring back, Chicago will borrow $85 million to purchase the soon-to-be-shuttered campus of Michael Reese Hospital to pave the way for construction of a $1.1 billion Olympic Village.
Although the $85 million note is backed by the full faith and credit of the city, the deal is structured to keep Chicago taxpayers off the hook.
Medline Industries, which owns the 37-acre Reese property, has agreed to make a "charitable contribution" of $20 million to cover demolition, environmental clean-up and interest payments tied to the 15-year borrowing.
The deal is structured so that the first five years of payments are "interest only." The interest rate is five percent. If Chicago loses the Olympic sweepstakes, the price goes up to $90 million.
Long before the principal is due, the city expects to recoup its costs by selling the property to a master developer, who would be chosen through a competitive request for proposals.
Pre-qualified teams will be identified in the fall. A closing is expected shortly after the International Olympic Committee choses a site for the 2016 Summer Olympic Games in October, 2009.
Although the real estate market is in the tank, Mayor Daley’s chief-of-staff Lori Healey, Planning and Development Commissioner Arnold Randall and Chicago 2016 Chairman Pat Ryan all insisted that taxpayers would not be left holding the bag.
"There’s been very significant interest from developers. This is ... a very attractive land site so close to the Loop. Sure, there’s a credit issue now. Certainly there’s an economic downturn. But this will be developed out in time. Most people view the problems of today will be gone by the time the burdens would be taken on" by taxpayers, Ryan said.
Healey didn't blink when asked when the unprecedented purchase would become a burden to Chicago taxpayers. Never before has the city spent so much to acquire a site without specific development plans.
"Never. We will never be on the hook. Never is never. ... We’re going to be disposing" of the property long before the five-year clock runs out, she said.
Randall added, "It’s a creative financing solution. We’re not laying any taxpayer dollars out. We’re using a note and the seller is actually giving us a portion of that money back. The interest will come out of that money. Ultimately, the city gets paid back in full once the property is sold to a developer ... It will be."
The Chicago Sun-Times reported last month that the Daley administration had reached an "agreement in principle" with Medline, owners of the 37-acre Reese campus, and filed a zoning application to "get the ball rolling" on development.
The "planned development" application calls for construction of a maximum of 7,500 permanent dwelling units and 1,000 hotel rooms that could be converted into residences. A traditional street grid would be created, along with retail, parks, schools and other amenities.
Construction of the Olympic Village was originally scheduled to be built on air rights over a truck staging area for McCormick Place.
Mayor Daley said he favored the move to the west because the Village can be built on solid ground at a dramatically reduced cost and better integrated into the surrounding Bronzeville community.
Local Ald. Toni Preckwinkle (4th) has been pushing for the Reese site from the outset for that same reason.