The sale of the 28-acre Montgomery Ward & Co. headquarters site to a bicoastal development team that likely aims to transform the mammoth, historic Ward’s catalog building into a residential complex may be headed for a roadblock.
A tentative agreement settling a lawsuit over tearing down six public housing high-rises at Cabrini-Green could be interpreted to mean that a portion of new residential development in the area surrounding Cabrini has to be set aside for very low-income public housing units.
The provision, which presumably applies only to development over which the city has some control, either through land ownership, financing inducements or zoning, targets an area bounded by North Avenue, Chicago Avenue, Wells Street and the Chicago River.
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One knowledgeable real estate source said the Wards site, just south and west of Cabrini along the river and partly within the area boundaries, is a prime target of the public housing set-aside provision. The property will have to be rezoned for residential use if it is redeveloped for housing.
“(The city) is going to require applicants for Montgomery Ward (zoning) to include public housing components,” said the source.
Chicago Planning Department spokeswoman Rebecca Carroll said the city is intending to ask the Wards redevelopers for the set-aside, but can’t require it as part of the rezoning process.
Even so, city officials could almost certainly bring heavy pressure to bear against a developer who wanted to get a project moving.
On the other hand, Carroll noted that the city has a strong interest in helping Wards out of its financial crisis–which could ease the rezoning process.
The aspiring purchasers of the property, a joint venture of Ocean Atlantic Development Corp. of Alexandria, Va., and real estate investment group Highridge Partners of El Segundo, Calif., have offered $110 million and are waiting for approval of their bid from the court handling the financially crippled retailer’s bankruptcy case, according to a spokesman.
The spokesman said the group has talked to city officials, but declined to comment on whether a public housing set-aside had been mentioned. Carroll said it hadn’t come up yet.
Told you so: Waiting for a real estate investment to bring expected returns can be a lengthy, agonizing process.
Just ask the investors in some of the funds managed by Heitman Capital Management, the investment advisory arm of Chicago real estate finance heavyweight Heitman Financial.
Some investors in Heitman’s commingled funds, in which groups of investors put money in groups of properties–mostly during the 1980s–got antsy in the early 1990s after the real estate market crashed and wanted to get their money out. At the time some property values had dropped 50 percent.
Some of the meetings with investors–big institutional players like pension funds–got pretty hot, according to Capital Management Chairman Jerome Claeys.
“We’d hold meetings with 40 investors, with some rancor and disagreement,” he said. “They were frustrated.”
Heitman initially decided a good cash-out strategy would be to go public with the properties, valued at about $4.5 billion, as four real estate investment trusts, Claeys said.
But that got so complicated and required so much paperwork from the investors that the investors finally vetoed the idea–sometimes with strong language, Claeys indicated.
So Heitman decided just to liquidate the funds by selling off the properties. And guess what? By that time, starting in 1997, the market was turning around and property values were rising.
Heitman sold about $1 billion in commingled fund properties last year and is on pace to unload considerably more than that this year, Claeys said.
And the investors are getting just about the returns they were originally promised in the early 1980s–an average between 9 and 10 percent a year over the life of the funds, said Capital Management CEO Mary Ludgin.
“This helps prove the case that real estate is long-term and cyclical,” Ludgin said. “To have sold a little earlier would have sold the cycle short.”
Buenos dias: Heitman Capital Management, in another of its fund ventures, is targeting Argentina for development investment as it takes some cautious steps overseas.
“We love Buenos Aires,” said Ludgin.
Intriguingly, Chicago’s U.S. Equities Realty Inc. has also tabbed Buenos Aires in opening its first office abroad. Its initial assignment is serving as development manager for BankBoston’s 29-story Argentine headquarters building.
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