Nine years ago, an obscure state agency called the Illinois Medical District Commission borrowed $40 million by issuing bonds to buy real estate on Chicago’s West Side, hoping to repay the money with rent from a massive development on part of the land.
But now it appears the district’s plans to repay the money will fall far short, according to documents examined by the Chciago Sun-Times — and the commission might be left scrambling to pay off the debt when the bonds come due in 2032.
The problems began after the commission used $8.8 million of the money to buy 7.5 acres of long-vacant land at 2020 W. Ogden for the development but failed to find a developer for the site for eight years.
Now, the clout-heavy developers — one of whom owes the IRS more than $2.8 million in delinquent federal income taxes — have signed a 75-year lease with the commission that calls for them to build 1 million square feet of offices, apartments, stores and a hotel at 2020 W. Ogden.
But the developers will have paid just $15 million in rent by the time the bondholders must be repaid in 2032 — only half of the $30 million the commission originally told bondholders they expected by then.
According to a recent audit, the commission currently owes more than $50 million in principal and interest on those bonds.
Commission officials declined to say how they plan to repay the bondholders, claiming federal regulations bar them from discussing municipal securities that are publicly traded.
But medical district commission spokeswoman Heather Tarczan said, “Please note that the commission has never missed a payment to bond-holders.”
It has experienced years of financial difficulties, though, since it issued the bonds to buy the land at 2020 W. Ogden.
It formerly owned that site and could have reacquired it for nothing because the Rosalind Franklin University of Medicine and Science abandoned the land decades ago, the Sun-Times reported in December. Instead, the commission paid the school $8.8 million for the land, then later turned to the state for financial help including a $4.5 million grant from then-Gov. Pat Quinn.
To bring in money to cover the yearly bond payments, commission members have struck development deals with Costco and a heliport operator while waiting to develop the Ogden Avenue site.
They finally reached a deal to do that last summer with a development group called Gateway Partners. Gateway includes developers Elzie Higginbottom and Jack Higgins, both close allies of former Mayor Richard M. Daley, and Chicago native and former professional basketball star Isiah Thomas. Higgins — who has said he’s worked out a deal to repay the IRS the $2.8 million he owes in back taxes — is represented by attorney Patrick Daley Thompson, a Daley nephew who’s on the April 7 city runoff ballot, running for alderman of the 11th ward.
The district is overseen by seven members, who were appointed by Quinn, Mayor Rahm Emanuel and Cook County Board President Toni Preckwinkle. At first, district officials refused to say how much Gateway Partners is paying to lease the government-owned property. It eventually released the lease payments after the Sun-Times appealed to Illinois Attorney General Lisa Madigan, arguing the commission was wrongly withholding public records.
The lease calls for Gateway to pay the commission $88 million over the course of 75 years. But only $15 million of that is due to be paid by 2032, when the commission must repay the bondholders.
Gateway is getting a year of free rent, which expires on Halloween. Then, it must pay $190,958 each of the next two years. Its rent then jumps to more than $1 million a year. Gateway also has an option to extend the lease for another 75 years.
If it decides to develop more than the agreed-upon 1,094,000 square feet, it will have to pay the commission $1 for each additional square foot of “rentable” space. And if Gateway sells the lease, the commission would get 5 percent of the sale price.
Gateway plans to subdivide 2020 W. Ogden into 12 sections, which will require permission from City Hall, and then have different companies develop each parcel.
Three buildings have to be under construction within three years, and five buildings within five years, or Gateway could lose its lease.
Higgins, whose company helped build Chicago’s police headquarters, originally was chosen in September 2013 to develop the property on Ogden. But the commission asked him to walk away from the deal after the Sun-Times reported that Higgins owed the IRS. The commission then sought new proposals, and three development teams submitted plans — including one group that included former Mayor Daley and another including Higgins and Higginbottom. The Higgins group ended up getting the deal after he reportedly entered into a payment plan with the IRS.
This is Higgins’ second deal with the commission. Previously, he and former business partner Penny Pritzker, who is now President Barack Obama’s commerc secretarye, paid the commission more than $10 million for the property where the FBI’s Chicago regional headquarters on the West Side now stands.