The developer of Chicago’s Lincoln Yards megadevelopment is set to hand back the northern half of the riverfront land to its lender, leaving an uncertain future for one of the most ambitious real estate projects ever undertaken in the city.
Sterling Bay plans to give a large chunk of the 55 acres of North Side land back to lender Bank OZK, the company said in a letter to the Chicago-based firm’s investors.
The move comes after Sterling Bay previously talked with potential investors, including Kayne Anderson, about potentially recapitalizing the mixed-use project along the Chicago River in the Lincoln Park and Bucktown neighborhoods. But a recapitalization deal has yet to materialize.
In the letter, Sterling Bay CEO Andy Gloor said Friday the firm remains focused on trying to bring to fruition its long-held vison for 14.5 million square feet of office, residential, entertainment, retail, restaurant and other space, a plan that was drawn up and approved before the onset of COVID-19.
Newer obstacles have included high construction and borrowing costs and a dearth of major investors seeking to recapitalize multibillion-dollar real estate projects.
“While this is an unfortunate pause in the development, all parties involved remain committed to the transformative vision of Lincoln Yards,” Gloor said in the letter. “Like cities across the country, the Chicago commercial real estate market is facing unprecedented pressures that are preventing the financing of projects at every scale and inhibiting the economic opportunities these projects bring. While the public and private sectors must collectively and aggressively address these pressures, this economic climate will not last forever.”
Lincoln Yards is one of three multibillion-dollar, mixed-use projects in Chicago that are now years into planning but as-yet unbuilt. The others are Related Midwest’s The 78 along the river between the South Loop and Chinatown and the Farpoint Development-led Bronzeville Lakefront on the site of the former Michael Reese Hospital on the Near South Side.
One completed structure
So far, the only Lincoln Yards structure completed is a vacant, eight-story life science research building at the southern end of the site at 1229 W. Concord Place. That building is not part of the land being seized by Little Rock, Arkansas-based Bank OZK, although the bank also is a lender on that building.
About 27 acres of land on the north end of Lincoln Yards will be handed to Bank OZK via a deed in lieu of foreclosure, a form of voluntary surrender, a Sterling Bay spokeswoman said.
Bank OZK moved to seize the land after writing down the value of the $126 million mortgage on the land, down to about $88 million by the end of 2024, according to Crain’s Chicago Business, which earlier reported the planned handover of the land to the lender.
A Bank OZK spokeswoman confirmed to CoStar News that the bank is taking title to the land.
“During 2024, the bank placed the loan on non-accrual status and wrote it down twice, reflecting the bank’s evolving expectations for success of the sponsor’s protracted recapitalization efforts,” she said in an email. “As appropriate, we will commence efforts to patiently market this property to a new sponsor with sufficient capital and development expertise to achieve its significant potential.”
Sterling Bay, meanwhile, is vowing to continue efforts to replace the initial investors in the project, J.P. Morgan Asset Management and Lone Star Funds, and resume the project.
The Chicago developer, known as one of the key driving forces in the redevelopment of the Fulton Market district, has been looking to sell sites in that neighborhood and near Lincoln Yards while seeking new equity and debt to kickstart Lincoln Yards.
“There remains great interest in Lincoln Yards, and we will continue to work with our partners to recapitalize the project and navigate the current industry headwinds,” Gloor wrote to investors. “Right now, that timeline requires patience and resolve, both of which we firmly have. Chicago became one of the greatest cities in the world by embracing big and bold ideas. Lincoln Yards builds upon that foundation, and we look forward to bringing that vision to life.”
Sterling Bay assembled several formerly industrial properties, including an A. Finkl & Sons steel plant that it demolished, to make way for Lincoln Yards.
Zoning allows for towers as high as 595 feet on land that runs along the river between North Avenue to the south and Webster Avenue to the north. The project won City Council approval in 2019, before the onset of the pandemic early the next year.