The developers of one of the biggest Chicago real estate projects in decades, a proposed $4 billion undertaking on the South lakefront, have split up, throwing the plan's fate up in the air.
Nearly 12 years after teaming up to redevelop the former South Works steel mill site, Chicago-based developer McCaffery Interests and property owner United States Steel have parted ways without constructing a single building on the vacant 589-acre parcel.
With its stock in the dumps and losses piling up, Pittsburgh-based U.S. Steel is no longer in a position to finance a major real estate project. The company and McCaffery terminated their agreement a few weeks ago, said Dan McCaffery, CEO of McCaffery Interests.
“They've been a very responsible and good partner,” he said, but “they're running a steel company, and they've run out of gas.”
McCaffery and U.S. Steel planned to build more than 13,000 homes, 17.5 million square feet of commercial space and a 1,500-slip marina on the lakefront site between 79th Street and the Calumet River. McCaffery also lobbied unsuccessfully to bring the Barack Obama presidential library to the project, which was called Lakeside.
The developer seemed close to launching construction in 2014, when Mariano's agreed to open a grocery store to anchor a shopping center on the property's northwest corner. But that commitment was conditional on McCaffery getting commitments from other retail tenants for about 170,000 square feet, McCaffery said.
“We have interest from other tenants, but our partner no longer has an interest in providing equity to get the project going,” he said.
U.S. Steel declined to discuss the decision to part ways with McCaffery.
“We do not comment on specific business relationships,” company spokeswoman Sarah Cassella wrote in an email. “We are working with affected stakeholders to develop an appropriate path forward for the South Works property.”
At South Works' peak in the 1940s, as many as 20,000 people worked at the steel mill, which U.S. Steel shut down in 1992. The firm picked McCaffery as its development partner in 2004, beginning a planning process that involved countless meetings with city, federal and state officials and endured a real estate crash and deep recession that scared off many potential investors and tenants.
McCaffery said he's “completely disappointed” by the split. He said declined to say how much his firm has invested in the project, saying only that it's in the seven figures.
But he also noted that the joint venture succeeded in its push to reroute South Shore Drive through the property, improving access to it. And he hasn't given up completely, saying he would still be willing to develop the property if he could find a new financial partner and cut a new deal with U.S. Steel.
“If I walked in tomorrow with an equity partner that wanted to be part of it, I would say there's a negotiation to be had,” McCaffery said.
Meantime, he has plenty of other work. McCaffery Interests and Houston-based developer Hines are redeveloping the former Children's Memorial Hospital campus in Lincoln Park into as many as 600 residential units and 160,000 square feet of commercial space. After lining up financingfrom Abu Dhabi's sovereign wealth fund, they recently paid $50 million for the property and plan to start demolishing the hospital in March.
McCaffery also is busy with projects in the South Loop, the Washington area and Pittsburgh.
Though the South Works redevelopment may still seem like a long shot to some, McCaffery doesn't have any regrets about taking the risk.
“If the only things you take on in life are the only ones you think will succeed, how do you get to the moon?” he said.