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A city advisory committee tonight will review a developer’s request for $2.9 million in tax increment financing assistance for a new development on the southeast corner of Chicago Avenue and Main Street in Evanston.

The project itself — a nine-story, mixed-use development — has already been approved by the City Council, but developer John O’Donnell says the plan for offices on the building’s second floor doesn’t make financial sense without the city aid.

The Chicago-Main TIF District Advisory Committee is scheduled to hear a presentation from the developer tonight and reach a recommendation on the project at a follow-up meeting next week.

Ultimate approval of the financial assistance request is up to the City Council.

O’Donnell, in a presentation prepared for the meeting says the development costs for the offices will total $5.1 million, while likely rental income would justify only a value of $1.6 million to $2.2 million.

As an additional incentive to get the office space built, the city, according to an appraisal report included in the presentation, is prepared to become the master lessee for the office space and then operate it as a business incubator space for new start-up firms.

The overall cost of the development — which will have ground floor retail and rental apartments on upper floors–  is estimated at $45 million. Assuming final approvals are received this fall, it could be completed by the spring of 2016.

The property has been vacant since 2007 and went through foreclosure after plans for a condominium development on the site fell through.

The city has been seeking for several years to encourage office development near the CTA Purple Line and Metra stations at Main Street as a way of creating more jobs in the city and stimulating business for retail shops in the area.

But appraisers don’t yet consider the area to be an established office location and there is only a minimal amount of office space in the neighborhood now.

Related document

Chicago-Main TIF committee meeting packet

Bill Smith is the editor and publisher of Evanston Now.

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14 Comments

  1. No economic sense ? Don’t do it.

    "O'Donnell, in a presentation prepared for the meeting says the development costs for the offices will total $5.1 million, while likely rental income would justify only a value of $1.6 million to $2.2 million."

    ==========================

    That pretty much says it all. It is the equivalent of "losing money on every sale but making it up on volume."  If a building plan cannot be profitable without city money, case is closed, don't do it.

  2. Come and get it.

    Evanston has become the city that gives. Everybody knows about it and everybody wants and gets a piece of the taxpayers pie. The Evanston government has choosen to keep taxes high. Nobody wants to come to Evanston because of the high taxes unless they get a piece of the pie.

    When is Liz, Wally, and the City Council going to wiseup.

    1. Stop, Please STOP!

      Quit giving taxpayer money away to private developers !!

      Any and every developer, business owner and entrepreneur is going to ask for money. They're stupid if they don't because they know there's a chance, a good chance that City Council will give them taxpayer money to fund their business. If they don't ask, they won't get any free or cheap money.

      Examples include FEW Spirits (asking for money to fund their expansion), Chicago Chicken & Waffle, Ward 8, Peckish Pig and more recently the proposed Culvers on Howard St.(in January 2014, it was reported that Culver's would open on Howard St, and then in mid 2014, the franchise owners approached Evanston city government about providing $ 800,000 in financial assistance – good news is that city government seems reluctant to provide the money)

      Stop giving away our money.

    2. Another question

      Why is the City involved in the incubator game? I get it on some level – close to NU, brings some jobs, etc., but the problem with the City getting involved is that if a great company is founded in that incubator, there is no commercial space or raw land in the City suitable for building a corporate HQ for a large company. So at the end of the day, the taxpayers foot the bill and then if the company takes off, the promises of jobs down the road will likely never materialize because the company will either fail (as most startups do) or head for another town when it outgrows the space that is available in Evanston. Does Evanston get an equity stake in these businesses? 

  3. Subsidies for empty offices?

    I'm not sure which idea is worse: taxpayers giving someone $2.9 million to build offices that won't be used, or the city of Evanston leasing all the offices and losing money every year for forever. (If both ideas are going to be implemented, that's the worst approach of all.) If a developer doesn't want to build offices, then make it 8 stories tall, and the city will save money and traffic/parking congestion will be reduced.

  4. Who in the city dreams up these ideas?
    “As an additional incentive to get the office space built, the city, according to an appraisal report included in the presentation, is prepared to become the master lessee for the office space and then operate it as a business incubator space for new start-up firms.”

    This is almost as bad as the recent charge of 10 cent a brick for the patio on the peckish pig- so we taxpayers will be the landlord for another piece of property that no one wants to rent at market rate? if condos work here why aren’t they allowing them to be built?

    The economic developement department clearly is not competent- none of their projects are paying off with the majority just wasting OUR tax dollars!

  5. Office Space ?

    People keep saying there is a lack of office space.  But the building at Emerson and Maple sat vacant for years and the one before the railroad tracks seems to be well under used.  I'm told the Davis/Hinman building has space.  Is the Rotary building full ? Does NU occupy all of 1800 Sherman ?

    If we need the office space, surely some savy investor would be in here with a plan and financing at the drop of the hat.  Why not ?  city laws, permit and regulations to build and operate ? city history of debating zoning/other until they business loses interest ? taxes ?

    If there is money to be made those 'dirty capitalists' the city rails against, would be here buying/building without city money—or have they learned it they propose and then balk, the Council will offer to thrown [taxpayer] money their way ?  So what's wrong ?

    The same with housiing—but there we know the city wants to enforce its own social views.

  6. Drop the idea of office space

    Didn't our aldermen give John O’Donnell a $40,000 grant to market the proposed office building?

    And didn't O'Donnell way back in 2011 decline to accept the second grant installment because prospective office tenants were moving more slowly than expected?

    It seems our wise aldermen are hell bent on getting office space at that corner whatever the cost. 

    John O'Donnell says the plan for offices on the building's second floor doesn't make financial sense without the city aid. Well, then our aldermen really need to drop the idea of office space. That way they won't need to consider a $2.9 million financing assistance request, paid courtesy of Evanston taxpayers..

    We need good aldermanic candidatea so we can vote out these cash crazed kooky incumbents.

    1. Let us pray!

      Let us pray, that in our educated and culturally diverse community there are at least ten qualified people who will willing run against the currently sitting alderpersons and mayor in the next election.   Let us pray, that what we have now was not the best God could do for us.  Amen!

  7. $5.1M to build and rental
    $5.1M to build and rental income of $1.6M – Is that yearly rental income? Seems like they would recoup costs in a reasonable amount of time. Why we need more empty offices is another question…

    1. Capitalization value

      Hi Brenda,

      The $1.6 million value is calculated by multiplying a forecast $163,000 in annual rent by a 10 percent capitalization rate.

      The capitalization rate amounts to an assumption that, if, say, you were to invest $1M in a property, you'd need to earn 10 percent of that — or $100,000 — each year in rent to cover your costs and yield an acceptable rate of return on the money you had invested or borrowed to build or buy the property.

      The developer's presentation says the building is expected to have 13,427 rentable square feet of office space and the developer asserts that market rents in Evanston for a new building are about $15/SF net. And he's assuming a 10 percent vacancy rate. Do the math on that and I come up with $181,264.50 in annual rent — don't know what accounts for the discrepancy between that and the $163,000 rent estimate the developer provides — but it's still far short of the projected construction cost.

      — Bill

  8. From bad to worse

    Let's see, in discussing a building for this site there was a lively discussion about not having at least one parking space per unit in this densely populated area.

    Then there's the newer problem of insufficient  classroom space in nearby Lincoln School.

    Now it's an issue of losing money on the project.

    In short: Why should teaxpayers foot the bill? Where do they park their car? Where do their kids go to school?

  9. Mixed Use Development at Chicago-Main

    While I support partnerships with our City government to spur economic development in some areas (Howard Street and west Evanston have been historically underserved and face higher hurdles to lure investment) I am perplexed by the proposal to offer 2.9 million of Evanston taxpayer dollars to support the development of office space in the Chicago Main business district. As a taxpayer and thirty year resident of this particular neighborhood,  I would direct the City staff and the TIF council to the AMLI Evanston development just one block south of the proposed new office tower.  Without a penny from the City, AMLI has developed nearly 8000 SF of commercial space and another 18,300 SF of unique office or live/work space.  Through innovative design and targeted marketing, AMLI is well on the way to creating a village of small businesses in the Chicago Main district.  Tenants include marketing companies, tech startups, fitness professionals, architects, photographers and several small retail companies that cater to beauty and wellness.   This is a win for the AMLI residents, for the Chicago-Main district and for the entire City.  Anchored by Hoosier Mama Pies and Dollop coffee shop, always crowded with happy Evanstonians, the AMLI community of businesses and residences should serve as template for new developments coming to town. Use innovation and creativity instead of tax payer dollars to produce a successful project.

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