In September 2022, then-Chicago Mayor Lori Lightfoot stood in the historic Rookery Building on LaSalle Street and declared that “the doors are open” for developers to propose city-backed conversions of outdated office space into affordable apartments.
More than two years after that news conference, and with Brandon Johnson now mayor of the nation’s third-largest city, the first project from an initiative called LaSalle Street Reimagined is near the starting line at 79 W. Monroe St. It comes as cities throughout the country try to find ways to revitalize downtowns that were hit hard by the onset of COVID-19 in early 2020.
For Chicago, the fallout from the pandemic resulted in waves of buildings ending up in financial distress and in need of new owners or new uses — or both — to avoid obsolescence.
As the project moves closer to reality, other development teams involved in a batch of four office-to-residential conversion proposals backed by Johnson are now working with the Chicago officials to take the next spot in line. And new groups have expressed hopes of late of joining the program, potentially widening the long-term scope.
Backers of the Chicago initiative said that, despite criticisms of its high cost per unit, it can become a national model as other major real estate markets grapple with what to do with outdated offices at a time of low demand as companies cut costs while keeping remote and hybrid work policies.
"This is about Chicago leadership nationally in solving complex problems in distressed central business districts,” Matt Garrison, CEO of 79 W. Monroe project developer R2, said in an email to CoStar News.
Other cities also are facilitating redevelopments. In Washington, D.C., construction has begun on the first office-to-residential conversion financed in part through a city tax abatement program. The project at 1625 Massachusetts is expected to create 157 apartments, CoStar News reported this month. New York state this year passed a new tax incentive program to boost the development of affordable housing, replacing a similar program that expired two years earlier.
The 79 W. Monroe project, backed by the billionaire Italian family that controls global spirits giant Campari Group and led by Chicago-based R2, calls for eight of the vintage office building’s 14 floors to be converted to 117 apartments.
Chicago’s City Council approved $28 million this month in tax-increment financing dollars to back the Monroe project, making it the first one greenlighted pending formal passage of the redevelopment agreement.
City and business leaders hope the program will simultaneously meet two goals: reduce the stock of unwanted corporate space on and around LaSalle Street while increasing the supply of affordable housing in the Loop business district.
The success or failure of that project could go a long way toward determining whether the longtime financial center’s next life will be a productive one.
Chicago’s initial project
The 79 W. Monroe project will cost almost $64.2 million, according to documents submitted to the city, with the owner providing almost $28.4 million in equity while seeking historic tax credits valued at more than $7.8 million.
It's expected to create 41 affordable apartments, 35% of the units. That exceeds the 30% required to be part of the Chicago program.
There are no financing contingencies to begin the project, Garrison said.
“We plan to start swinging hammers immediately,” Garrison said, with an expected completion in early 2026.
Finishing the initial project would be an important milestone, after years of discussing a potential city-backed program.
“The Loop is the economic driver of Chicago,” Garrison said in the email. “Ideas are great, but the hard part is making them happen. We are in year four of an existential crisis."
He adds that 79 W. Monroe is a funded project, "ready to go that will deliver the highest affordability ratio of any proposed project. And it’s a smaller project. This will allow the city to manage the size of its initial investment and evaluate and optimize the project. We have right people in place and set of circumstances to make this happen. The mayor’s office has approached this very strategically and is taking action to revitalize the Loop in an equitable way.”
The building at 79 W. Monroe is owned by Luxembourg-based Lagfin, the firm managing the Garavoglia family’s investments. Members of the Italian family also own a controlling interest in Campari Group, whose liquors include Campari and Aperol aperitifs, Wild Turkey bourbon whiskey and Skyy vodka.
The family’s other real estate investments in Chicago include buying the 41-story office tower at 150 N. Michigan Ave. with R2 for $60 million — just under half its previous sale price — early this year, after paying $35.75 million for the Time Out Market building in the Fulton Market district last year.
Next in line
The conversion at 79 W. Monroe was among the initial four plans that Johnson announced he was backing, backed by a potential $151 million-plus in city incentives, to launch the initiative begun by his predecessor.
The four plans — also including buildings at 111 W. Monroe St., 30 N. LaSalle St. and 208 S. LaSalle St. — would create a combined 1,037 apartments in the place of vacant office space.
If they all come to fruition, the redevelopments would repurpose large blocks of space after years of concerns about historic buildings that have lost huge office tenants such as Bank of America and BMO Financial to new towers along the Chicago River a few blocks west of the heart of the Loop.
City and business leaders are hopeful that the broader initiative will increase the downtown residential population and bring in businesses such as grocery stores and new restaurants and shops.
Despite the Loop’s struggles, even before the onset of COVID-19 in early 2020, there are other signs of a recovery. That includes Google’s plans to own a redeveloped James R. Thompson Center, where it is expected to have thousands of employees, and JPMorgan Chase’s announcement that it will overhaul and stay in the 60-story namesake tower it owns after considering anchoring a new development.
The 30 N. LaSalle project recently took a step toward a planned redevelopment by Chicago’s Golub & Co. and Houston-based Corebridge Financial, a spinoff from American General Life Insurance.
The AIG affiliate took possession of the 43-story tower last year after longtime owner AmTrust defaulted on its loan. In September, the Corebridge-Golub venture paid $14 million to buy out a separate investor that owned the land beneath the tower, according to Cook County property records.
Buying the land was a key step toward gaining city approval for the residential conversion of 14 floors of the tower, as the firms move close to finishing schematic designs for the residential portion of the tower, Managing Principal Lee Golub told CoStar News.
Future phases
As the first wave of projects takes shape, new developers are lining up, though those talks are preliminary.
“Nothing formal has been presented for other potential projects but the city remains open to new proposals,” a planning department spokesperson said in an email to CoStar News.
A low-profile development team led by Chicago’s Primera Group in October said it plans to approach the city with a plan to convert much of the Clark Adams Building at 105 W. Adams St. to affordable housing.
It bought most of the 41-story tower from the lender that took it back after the previous owner defaulted on its debt.
That plan would replace a vision by a different group of investors that previously proposed a conversion. CEO Zach Waickman said the firm plans to talk with the city about its proposal, which could include adding a grocery store on lower levels, becoming part of LaSalle Street Reimagined.
Chicago developer Envoi Partners said it plans to approach the city about its conversion plan after recently taking control of the 16-story vintage office building at 19 S. LaSalle St.
Envoi Principal and General Counsel Cory Faulkner told CoStar News that his firm took title to the more than century-old structure after local investor Igor Gabal struck a deal to buy the debt at a discount from the lender, then flipped it to Envoi.
The building’s previous owner commissioned architectural drawings showing 172 units, Faulkner said, and his firm is considering a similar plan.
“We think a conversion to apartments is probably where we’re headed,” Faulkner said.
Faulkner said his firm still needs to talk with city officials and explore potential funding sources, which could include TIF funds and historic tax credits, for the approximately $50 million conversion.
A redevelopment could include creating a rooftop deck and adding a restaurant or entertainment concept in the historic, brick-paved alley running along the south side of the building, Faulkner said.
“We want to be sure that whatever we do fits within the broader scheme of the LaSalle Street Reimagined program and the Loop as a whole,” Faulkner said. “Using TIF and other funds in the way that the city is proposing will help assure that LaSalle Street has a new and prolonged life, something more viable than just a pure office district. It can be a true mixed-use neighborhood with abundant retail, folks who want to live there, and hotels for those who want to stay there.
“You need that critical mass to get those neighborhood amenities that will make the area more desirable, like grocery stores and restaurants. I don’t think our project will be the last one.”