Striking a new deal to privatize the ailing Port of Chicago — particularly a deal as potentially favorable to the city as the tentative pact that collapsed last week — will be a herculean task due to the vast amount of investment needed at the neglected facility, according to transportation experts.
Though the port is a valuable peg in the region’s cargo-moving system and could see more river traffic because of Panama Canal improvements and more St. Lawrence Seaway traffic due to upgrades at Nova Scotia’s terminals, it is a fixer-upper. It has seen no significant investment since 1981.
The port’s dilapidated condition and its location in a depressed area make it a tough sell in a still recovering industrial real estate market. Neighboring Indiana, home to a rival port just over the border, has lower corporate tax rates and a more laissez-faire labor climate. Add on the uncertainty about how the region will deal with keeping invasive fish species out of the Great Lakes — raising the specter of physical barriers between waterways — and the sell becomes that much harder.
The failed pact with The Broe Group “seemed too good to be true,” said Joe Schwieterman, a transportation professor at DePaul University. “The area needs extensive infrastructure investment before it’s ripe for attracting large-scale new tenants. So the city needs to put serious skin in the game for the magic to happen.”
The exit of Denver-based Broe Group, at least for now, does not bode well, either, said transportation industry veteran Sean Maher.
The company was the most logical candidate to run the port because its OmniTrax division already operates a railroad there, making it possible for the firm to devise efficient connections between water vessels and freight trains, said Maher, former chief operating officer at CenterPoint Properties Trust, an Oak Brook-based industrial development firm.
“The fact that they are walking away, or it appears that way, tells me they looked under the hood and something doesn’t fit their economic model,” he said.
Neither side would detail what sunk the deal. But Mayor Rahm Emanuel said last week that Broe wanted to change fundamental terms of the deal “as it relates to economic investments and job creation they committed to in the first place. ‘No’ is going to be the answer.”
Michael Forde, chairman of the Illinois International Port District, the city-state agency that owns the port, said Friday, “We have several compelling proposals from a number of bidders and so we’re resuming discussions with other bidders to see if we can’t get to an agreement that is best for the city in terms of maximum economic development and job creation.” He also said it’s possible talks could resume with Broe.
The district’s board, controlled by mayoral appointees, is pursuing private management in an effort to reinvigorate a port that has been mismanaged and left to deteriorate for years.
“Because we haven’t done anything at the port, we were losing business to Indiana’s port, losing jobs to Indiana’s port,” said Emanuel, who appointed Forde in 2011 to lead a turnaround.
The Broe proposal gave a clue as to the scope of needed upgrades. Broe had proposed attracting $100 million in investment to the port during the first decade and nearly $500 million in economic investment over the life of a proposed 62-year lease. It also expected to create 1,000 full-time jobs.
More Top Picks Best Electric Bikes
The deal called for the company to retain 90 cents of every dollar in new revenue generated by port operations, with the remaining 10 cents going back to the Port District. Broe also would have paid the agency $1 million a year. The shared revenue would have been used to pay down the district’s debt, around $30 million, and its pension liability, around $5 million.
Though many Chicago residents are wary of privatizing public operations after the city’s highly unpopular parking meter deal, the prospect of privatizing management of the port has not engendered much debate, unlike the now-aborted Midway Airport deal.
While Midway already is a well-functioning operation, the port has languished. It employs only six people, so the potential for job loss is low. And it is not used by individual consumers, so there’s no risk of angering voters with higher prices for parking or coffee.
“With the port, you have a blank slate,” said Peter Skosey, executive vice president of the Metropolitan Planning Council. He led the mayor’s advisory panel on Midway.
With local and federal governments strapped for cash, port privatization, a trend in foreign ports for years, has been gaining attention here, said Virginia-based port consultant John Vickerman.
Skosey said the shift is worth exploring: “In general, if private operators are used to dealing with shippers and have existing relationships with freight lines and logistics firms, it would be better than city government running it from scratch.”
Profit-driven private operators will look for growth potential. One selling point is the district’s expiring leases, according to a 2012 strategic analysis by BMO Capital Markets, Acacia Financial Group Inc. and Cabrera Capital Markets. It was commissioned by the district for nearly $160,000.
Tenant revenues could increase fourfold over the next 20 years by renewing those leases at current market rates, according to the district. It also cited opportunities for new development.
As well, the growth of natural gas exploration in the northern Plains states creates demand for sand, used in the fracking process to access gas. The sand could move through the port, adding to volume, the study found.
But the port is in dire need of investment. The 3,000-foot dock wall at Iroquois Landing, a key part of the property’s ability to attract larger ships, is more than 100 years old and requires more than $10 million in repairs. Port-owned warehouses are run-down, offering little more than shelter from rain or snow. And much of the land on the east side of Lake Calumet has been rendered “outdated and antiquated” by changes in the shipping industry over the past 60 years, according to the study.
Another concern is the possibility of physical barriers being built between inland waters and the Great Lakes to prevent a migration of Asian carp and other invasive species into the lakes.
“The mere uncertainty surrounding the idea … is scaring away potential investment and prospective tenants,” the 2012 study stated.
Tribune reporter Bill Ruthhart contributed.