Emanuel to try again to refinance $91M Michael Reese loan
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For the second time in five years, Mayor Rahm Emanuel will try and lighten the load of a $91 million financial albatross: the Michael Reese Hospital site purchased for an Olympic Village before Chicago’s Olympic-hosting dream turned into a nightmare.
Tucked away in the revenue ordinance tied to the mayor’s 2017 budget is authorization for Chief Financial Officer Carole Brown to refinance a Reese promissory note with property owner Medline Industries that still has $72.8 million in principal remaining.
Shortly after taking office, Emanuel refinanced the Michael Reese debt to save $14.5 million. A fixed interest rate of 7.5 percent was reduced to 5.95 percent.
Now, the Emanuel administration is poised to try again to reduce the burden to taxpayers even as it waits for responses to a request for proposals from developers that could someday turn part of the 49-acre site into a casino.
“The loan was $91 million. We’ve paid $49.5 million so far. That includes principal and interest. If we refinance the existing loan with a different bank, we can get a lower interest rate,” said Molly Poppe, a spokesperson for the city’s Office of Budget and Management.
“We haven’t identified the appropriate bank, so we don’t know exactly what the savings will be. But it’s gonna take some time to [evaluate bids]. Even if we save $1 million over a year or two [until the land is sold], for us that’s worth it.”
Civic Federation President Laurence Msall said it’s “reasonable” for the city to try again to refinance the debt.
But, he said, “It would be better for the city to sell the property and pay off the debt they carry, rather than bearing the continued interest cost and non-productive use of this property…They need a transparent, long-term plan for what the city is doing with this property [and] move toward selling it sooner, rather than later.”
Last month, the Emanuel administration issued an RFP from developers interested in building “one or more” commercial, institutional, residential and recreational projects on the Reese site.
Final bids are due in Feb. 22. A developer is expected to be chosen on April 6.
The Emanuel administration made no specific mention of a Chicago casino at a time when the city is poised to renew its decades-long quest for a land-based casino.
But speculation abounds that at least a portion of the site bounded by 26th Street, Martin Luther King Drive, 31st Street and the Illinois Central railroad trucks may someday house a Chicago casino.
To make the site more attractive to developers, the Emanuel administration disclosed that it would consider incorporating 28 acres of air-rights directly east of the hospital site. The land below is owned by McCormick Place and used as a “marshalling yard” to stage trucks and other vehicles servicing conventions and trade shows.
In an interview with the Chicago Sun-Times days last month on the eve of his budget address, Emanuel hinted strongly that he would make another casino push during the post-election veto session.
“It is not a panacea to Chicago’s economy. [But] it can be [a good thing] if done right,” the mayor said then.
Pressed on whether he favors a casino on the Michael Reese site, the mayor said, “I have an RFP out. I’m not gonna pre-judge a process.”
In 2008, former Mayor Richard M. Daley rolled the dice that a depressed real estate market would come roaring back to further his dream of hosting the 2016 Summer Olympic Games. Chicago borrowed $85 million to purchase the Reese campus to pave the way for construction of an Olympic Village.
The price rose to $91 million after the city’s stunning first-round knockout in the 2016 Summer Olympic sweepstakes.
When the property was not unloaded to private developers within five years, the price rose to $96 million and the city was forced to start making payments on the loan.
At the time, Chicago taxpayers were assured there was no chance of that happening.
Top mayoral aides were certain Chicago would win the Olympic sweepstakes. And even if the city didn’t win, they were certain the valuable land would be gobbled up by developers.
Daley and his team turned out to be dead wrong on both counts. Rio de Janeiro won the 2016 Summer Olympic Games. And the Michael Reese property—cleared of all buildings except the 72,800 square-foot Singer Pavilion—has sat stubbornly vacant.
That has forced Emanuel to make payments on the loan.
Last year, Emanuel used $35 million in proceeds from a $1.1 billion borrowing to make the city’s 2015 payment on the Michael Reese loan. Since then, quarterly loan payments have been made from the city’s operating budget.
If the city can’t find a development team soon, Chicago taxpayers will ultimately pay $50 million in interest on the $91 million borrowing.
Three years ago, the architectural firm of Skidmore, Owings & Merrill concluded that a multi-phased, 6.5 million square foot development on the Michael Reese site could generate more than 3,000 full-time jobs.
The study further concluded that a massive redevelopment anchored by a casino would be far more lucrative for the city–generating a $208 million jackpot–than yet another round of convention hotels or even the Obama presidential library.
The Obama’s ultimately chose Jackson Park for their presidential library.
“The casino and entertainment district scheme provides positive proceeds to the city, while the presidential library and hotel complex schemes require city investment,” the study concluded.