Developers ask Lincolnwood for a $33.5 million incentive for former Purple Hotel retail complex

Site plans for new proposed development on Purple Hotel site. |  Courtesy of Village of Lincolnwood
Site plans for new proposed development on Purple Hotel site. | Courtesy of Village of Lincolnwood

LINCOLNWOOD — The developers behind a $125 million plan to build a retail complex at Lincolnwood’s former Purple Hotel site are asking the village for a $33.5 million incentive to cover a portion of the project’s costs.

Trustees during a June 17 Committee of the Whole meeting discussed a recommendation from the Lincolnwood Economic Development Commission to approve Skokie-based North Capital Group’s request for the subsidies, which—if approved—would be paid over a 20-year-period.

Formal considerations to grant the funds to the developer are planned for the next village board meeting on July 15, but village attorney Steven Elrod urged the Board to postpone taking any action on North Capital Group’s incentive proposal until the site’s Planned Unit Development (PUD) was complete.

Reports from a consultation firm hired by the village show North Capital Group needs the public financing to help cover a gap in projected development costs.

The funds would come from a mix of tax increment financing, sales tax, and a new hotel tax generated from a SpringHill Suites planned to open on the property.

In order to generate a new 1 percent business district sales tax and a 1 percent hotel tax, state law dictates that a business district be formed to encompass the boundaries of the retail site.

Creating a business district consistent with the boundaries of the development would give the Village authority to impose the additional taxes.

Other taxes that would contribute to the subsidy include the following: half of the 1 percent state sales tax, half of the Village’s home rule sales tax gain, and all increases in property taxes generated by the development, according to Tim Clarke, community development director for Lincolnwood.

Clarke explained during the June 17 Committee of the Whole meeting that a “pay-as-you-go” system would remove any risk on the Village’s behalf.

“The Village’s obligation would be to pay out these funds as the Village receives them, so all the risk is on the developer,” Clarke said.

Between now and mid-July, the village’s job will be to figure out a minimum incentive amount that would help North Capital Group achieve high enough returns to gain needed equity and finance a construction loan for the project.

“Part of the reason this request is being made is because there are some extraordinary costs involved,” Clarke said.

Clarke said a 20 percent return-on-investment (ROI) would likely be needed to attract investors, but that number could fluctuate based on current market conditions.

The $33.5 million (based on the net present value) would be the maximum incentive amount to be considered, and the Board will take into account projected inflation rates and other factors before coming up with a final figure.

If North Capital Group were to receive the $33.5 million incentive from the village, it would need to raise about $27 million in equity, and also take out a roughly $64 million construction loan.

It’s not uncommon for a retail developer to use public subsidies to assist with development costs.

According to a report by the Village’s consultant Kane McKenna & Associates, other Chicago-area development projects that used subsidies include the Chicago Premium Outlet Mall in Aurora, Fashion Outlets of Chicago in Rosemont and a mixed-use project in Park Ridge.

Tags:

0 Comments

Modal