Downtown Chicago is in trouble. Should the average resident care? If so, what can be done?
First, as to the assertion itself — yes, the situation is getting worse. The pandemic awoke many people to the advantages of not having to come to the office every day, and the effect has cascaded over building finances.
The bond rating agency KBRA said Chicago leads U.S. metro markets with almost a quarter of its commercial mortgage-backed securities in distress. Several prominent towers are in that category, such as the Civic Opera Building, the 30 N. La Salle St. building, the Palmer House and the massive 175 W. Jackson.
Meanwhile, vacancy rates keep rising as companies cut back on space or toss unused floors onto the sublease market. Looking back at the year’s third quarter, Transwestern said almost 20% of downtown offices were vacant. You could tack another five percentage points onto that if you include space available on subleases. The percentages are higher than they were a year ago.
When the pandemic hit, experts speculated office building values would decline 20%. Then the talk went to 40%. Now, it’s 60%, bolstered by the one completed sale of a downtown office property so far this year — 230 W. Monroe St. It fetched $45 million, 35% of what it sold for in 2014.
“We haven’t hit bottom yet,” said Farzin Parang, executive director of the Building Owners and Managers Association of Chicago.
It’s fair to ask why people should care. Aren’t the investors on the losing end the type who can afford a debacle? Yes, but a bad debt pileup means owners grow unwilling or unable to fix them for what tenants want today. It’s bad for jobs in the part of the city with the best transit access from anywhere. It hurts downtown housing, the cultural institutions and the spirit of the city.
Another argument literally hits home. Downtown commercial and industrial property makes up about a quarter of Chicago’s tax base, in which every property owner has a part. When tax bills go down in one place, they go up in another.
Researchers at the University of Chicago crunched the data and concluded that a 40% hit downtown would lead to a 9% increase — $479 — in the annual tax bill for an average Chicago home. They acknowledge limitations in their work — property taxes are notoriously tangled.
But Parang says the findings are consistent with his group’s “back-of-the-envelope math” that concludes a 60% decline could yield a 20% hike for homeowners. Downtown property gets reassessed for tax purposes next year, and building owners, who know the political influence game, traditionally get most of what they argue for.
Parang, downtown developer John O’Donnell and others in real estate — I couldn’t confirm more names — presented their concerns to Mayor Brandon Johnson last week. Johnson got elected by running against the business interests, but Parang said the talk went well.
“He has consistently said he wants people at the table,” Parang said of the mayor. “We take that on good faith.”
O’Donnell declined to comment.
Business leaders also have started their own conversations in various civic forums, with ideas getting kicked around. The most common one is to introduce mixed uses to old office buildings, a main point of formal proposals about the future of La Salle Street and the Magnificent Mile. Traffic on La Salle and Michigan Avenue could be slowed for pedestrians’ sake.
One brash developer said Chicago should take out outmoded space by bulldozing blocks to create its version of New York’s Central Park.
Others don’t think demolition makes sense, but three insiders separately told me if open space makes the central core more appealing, why not build landscaped decks over the Kennedy Expressway as it passes through downtown?
It’s the old “cap the Kennedy” idea that comes up occasionally but never goes anywhere — a lot of money for a downtown section still doing well. So the mayor might not go for it.
But if civic and business groups want to take up downtown’s cause, City Hall has to take a lead. It’s midway through Chicago’s first update of its overarching Central Area Plan in 20 years. Its next session for public input on the plan is 5 p.m. Wednesday at the Cultural Center, 78 E. Washington St.
Another resource could be the planning department’s Committee on Design. It’s got a lot of brainpower — 23 experts in various aspects of urban design. They have reviewed large-scale projects at monthly meetings. But Johnson has let this creation of the prior administration go on hiatus — there’s been no public session since August.
So what if this committee isn’t his idea? As those Loop tax bills plummet, Johnson will need all the help he can get.
