Real Estate

Chicago Megaprojects Lincoln Yards, The 78 Face Delays Amid High Rates

Pandemic and rising interest rates stall three major Chicago megaprojects, including Lincoln Yards, Bronzeville Lakefront, and The 78.

By Doug Elli

7/11, 14:19 EDT

Key Takeaway

  • Chicago's megaprojects, including Lincoln Yards and The 78, face delays due to high interest rates and post-pandemic economic shifts.
  • Sterling Bay is negotiating new investments for Lincoln Yards amid challenges like high property taxes and reduced office demand.
  • Related Midwest's stadium plans at The 78 hinge on state subsidies, with potential collaborations involving the Bears and Red Stars.

Chicago Megaprojects Face Delays

The pandemic and rising interest rates have significantly impacted three major Chicago megaprojects, stalling their progress despite their potential to reshape the city's landscape. These projects, which have been in the pipeline since the pre-pandemic era of low interest rates, include Sterling Bay's Lincoln Yards, Farpoint's Bronzeville Lakefront, and Related Midwest's The 78. Each of these developments aims to create mixed-use master plans that could transform areas from the North Side to the South Side and from the Loop to the Lakefront. However, they are all moving forward at a slow pace due to various economic and social challenges.

Sterling Bay's Lincoln Yards

Sterling Bay's Lincoln Yards project has seen some progress, with a 320,000-square-foot life science center already operational and work on a river walk underway. However, the project's chief financial backers, J.P. Morgan Asset Management and Lone Star Funds, are looking to sell their stakes. Sterling Bay is currently in talks with Kayne Anderson Real Estate, a new investor, and has reworked terms of a $126 million loan from Bank OZK. The project faces challenges such as high interest rates, lack of market liquidity, and high property taxes, which have made it difficult to execute, according to Sterling Bay Managing Principal Keating Crown.

Farpoint's Bronzeville Lakefront

Farpoint's Bronzeville Lakefront project, initially envisioned as an Olympic Village, has made some progress with 2.5 miles of new streets in the works. Farpoint CEO Scott Goodman expects construction to go vertical next year, starting with residential and retail spaces. However, the project's success is heavily dependent on economic conditions, construction costs, and interest rates. Goodman has also pitched the site as a potential location for the Chicago Bears' proposed stadium, although this seems unlikely.

Related Midwest's The 78

Related Midwest's The 78 project aims to create Chicago's 78th officially designated neighborhood, featuring high-rise apartments, a hotel, entertainment spots, and a parking garage. The project, which originally planned for 10,000 residential units, has scaled back to about half that number, with 20 percent designated as affordable housing. The development's success is likely dependent on securing subsidies from the state, a challenging prospect. Related Midwest President Curt Bailey has indicated plans to collaborate with other teams, such as the Bears and the Red Stars soccer team, to push for stadium subsidies.

Broader Implications for Chicago's Real Estate Market

The delays in these megaprojects highlight broader trends in Chicago's real estate market, particularly the challenges posed by high interest rates and economic uncertainty. These factors have made it difficult for even the most attractive developments to move forward. The situation is further complicated by local tax rates and reduced demand for office space due to the rise of remote work. Despite these challenges, the projects represent a long-term vision for Chicago's development, akin to the decades-long processes behind Lakeshore East and Central Station.

Street Views

  • Keating Crown, Sterling Bay Managing Principal (Neutral on Lincoln Yards):

    "Lincoln Yards is dealing with the same difficulties as every project in commercial real estate right now. High interest rates, lack of liquidity in the market, property taxes that are among the highest in the country, and reduced demand for office product, resulting from work-from-home post-pandemic, have made even the most attractive developments like those in Fulton Market and Lincoln Yards more difficult to execute."

Management Quotes

  • Scott Goodman, CEO of Farpoint:

    "We are working towards being true to our commitments and also being mindful of the marketplace and being sure we’re building things that are in demand and economically feasible. So much is dependent on the economy and on construction costs and on interest rates, but we expect to go vertical as quickly as possible."