City Paying Well More Than Typical Rent For Migrant Shelter Buildings — And Keeping Details Secret (2024)

WEST LOOP — More than a year after migrants from the southern border began arriving in Chicago, city officials were still struggling to respond.

By fall, as the total number of new arrivals climbed toward 15,000, then 17,000, then 20,000 and eventually far above it, officials continued to send them to crowded police stations and makeshift shelters — often before sharing their plans with the community or even the local alderperson. Frustration spread.

At a community meeting in October, West Loop residents barraged city officials with questions: How did the city decide to open four new shelters in their neighborhood? Why didn’t officials talk to the community first? And how much were the shelters going to cost?

Officials didn’t answer questions about the money, but they did reveal that the West Loop had something they were looking for: lots of vacant offices.

“You guys have stock in this area that is easy, turnkey-ready and people want it to be rented,” said Sara Mathers, the city’s first deputy of community engagement.

By the end of the meeting neighbors were murmuring about the West Loop shelter buildings, since they were all owned by prominent developers.

Months later, aides to Mayor Brandon Johnson still won’t say exactly how those buildings were picked or what they’ve paid to rent them.

But a picture has emerged through interviews and public records: As the new mayor and his team grew desperate to find housing for the migrants, the emergency offered lucrative opportunities to some city contractors and well-connected property owners, Block Club Chicago found.

• In the West Loop, Johnson aides ultimately approved deals to convert three former office buildings into migrant housing at a cost to the city of as much as $1.3 million a month, according to information provided by the city.

• That tab is just for renting the space — it doesn’t include food or other services. And the city has opened 22 other shelters, most in privately owned buildings whose owners will be compensated at rates not yet revealed to the public.

• The city is obligated to pay far more to use the West Loop properties than they were generating before they were used as shelters. Advertised rent for West Loop office space is a fraction of the rate the city is responsible for paying to house migrants. Plus, before they were used for temporary housing, none of the shelter buildings had been full, as landlords struggled with plummeting demand for office space after the pandemic.

City officials and real estate professionals said the shelter deals resulted from Johnson’s commitment to help migrants. They stressed that the costs of managing the properties, including utilities and insurance, are higher when they’re used for housing instead of offices.

“To compare what a company would pay to lease out the building with what the City is paying would be a misrepresentation of the reality,” the Mayor’s Office said in a written statement.

But the city hasn’t offered a full picture of that reality. As in other neighborhoods, the shelter deals in the West Loop remain shrouded in secrecy, which has hurt the cause of helping the migrants, neighbors and alderpeople say:

• Johnson administration officials won’t detail how the West Loop shelter sites were chosen, instead providing a general overview of how the Mayor’s Office and other departments work with contractors to identify suitable properties.

• The overview shows the city did not undertake a competitive bidding process before renting the properties. Buses from Texas began bringing migrants in August 2022, but officials consider the shelters part of an ongoing emergency response, allowing the city to bypass standard contracting rules.

• City officials also said they don’t yet have records showing how much they’ve been billed for use of the West Loop properties.

• Johnson aides told Block Club they don’t have copies of the West Loop rental agreements because contractors handled that work. The contractors and building owners declined to comment, wouldn’t provide figures or documentation or didn’t respond.

The Johnson administration should let the public see details of the shelter deals, including rental agreements and payments, said Joe Ferguson, the city’s inspector general from 2009 to 2021. If city officials don’t have those records, they aren’t providing adequate oversight, he said.

“All of these regular standards and practices, on the basis of what we can see, have been left to the wayside,” Ferguson said. “This raises questions about the bounds of emergency authority and whether they’ve been exceeded.”

The Landlords

In response to questions, Johnson administration officials provided summaries showing the city will pay $17.90-$19 per bed per night for the West Loop shelter spaces, which could have 2,350 beds altogether. That adds up to about $1.3 million a month.

An undisclosed amount of that money is set to go to Kentucky-based contractor Equitable Social Solutions, which manages the migrant shelters. In addition, the city is on the hook to pay Equitable fees of $150,000 or more a month for “administrative expenses” at these three properties.

KEY PLAYERS

Phil Denny

Owner of Peppercorn Capital

• Self-proclaimed “King of the West Loop,” owning more than 30 buildings in the neighborhood.

• Owns 939 W. Lake St., 1640 W. Walnut St. and 30 N. Racine Ave.

• He and his company have donated $20,550 to political funds controlled by Ald. Walter Burnett Jr. (27th) since 2015.

A. G. Hollis

Investor, MAB Capital Management LLC

• Member of the West Central Association board.

• Co-owner of 344 N. Ogden Ave.

• Donated $3,000 with Goodman to Burnett’s campaign fund in 2017-2018.

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Scott Goodman

Founding principal of Farpoint Development

• Leader of a team picked by the city to redevelop the Michael Reese Hospital site.

• Co-owner of 344 N. Ogden Ave. and head of entity that owns 1308 N. Elston Ave.

• Donated $3,000 with Hollis to Burnett’s campaign fund in 2017-2018. Donated another $3,000 to Burnett on his own from 2017-2021.

Building owners Phil Denny, Scott Goodman and A.G. Hollis also stand to benefit from the deals, though none of them answered questions from Block Club about exactly how much of the payments are going to them. Neither did the city.

Denny and Goodman are prominent landlords and developers who have worked on projects with the city, while Hollis is an investor who serves on the board of the West Central Association, the city-backed chamber of commerce for the West Loop.

The property owners and city contractors are trying “to get what they can,” said Ald. Walter Burnett Jr. (27th). The three West Loop shelters are in his ward.

“I think that whoever is doing the negotiating needs to negotiate better,” Burnett said. “I think they can get a better deal if they try.”

In the past, the building owners have all donated to campaign funds controlled by Burnett, who also serves as the city’s vice mayor. At community meetings this fall, Burnett told residents he had no input into the city’s shelter site decisions.

Hot Market, Desperate Times

The West Loop and Fulton Market development market is hot. Numerous high-rise residential buildings have been approved by the City Council in the past two years.

“We’re blessed that people still want to do things in our community,” Burnett said at a meeting earlier this year to discuss a proposed residential project. It is “one of the most in-demand areas in the city and probably the country.”

But the demand for office space has crashed since more people are working at home. The Downtown office vacancy rate remains high, at 23 percent at the end of September, according to Crain’s.

Those partially empty buildings — many rehabbed during the West Loop boom of the past few years — are often readily converted to temporary shelters. And landlords are looking for ways to get revenue out of them again.

After Johnson took office in May, city officials approached real estate leaders to see who would be willing to help the city’s migrant efforts — and fill their buildings at the same time, sources told Block Club.

Goodman and Hollis, both well-known in local real estate circles, were among those contacted by the city.

Goodman already had ties to City Hall under previous mayors. His firm, Farpoint Development, is the leader of a team picked by the city to redevelop the former Michael Reese Hospital site in Bronzeville. The city has agreed to boost that project by spending $60 million on public infrastructure.

Hollis, meanwhile, has input into West Loop development as a member of the West Central Association board.

Through a partnership, Goodman and Hollis own the 41,000-square-foot building at 344 N. Ogden, which they bought in 2016.

That partnership, Ogden-Carroll, donated $3,000 to Burnett’s campaign fund over a nine-month period in 2017 and 2018, records show. Goodman gave another $3,000 to Burnett between 2017 and 2021.

In rehabbing the Ogden building, Goodman and Hollis hoped to capitalize on soaring interest in the Fulton Market district. A 2021 real estate listing promoted the building as a “recently renovated, five-story boutique loft office property” that was a short walk from restaurants, entertainment and public transportation.

But demand for offices remained weak after the pandemic, and the building was a third empty by this September, Crain’s reported. Leases for existing tenants were set to expire in the months ahead.

By turning the building into a shelter, Goodman and Hollis had a guarantee the property would be full and generating revenue for at least the next year. They also saw a chance to help the migrants and the new mayor. So they decided to end their existing leases and agreed to a deal with ReloShare, a city subcontractor.

On a mild day in October, several migrant kids and teenagers hung out or rode bicycles on the sidewalks along Ogden. A worn, graffiti-marked sign stood in front of the building. It said, “Available For Lease.”

‘King Of The West Loop’

By October, another property owned by Goodman — a former warehouse space at 2241 S. Halsted in Pilsen — opened as a shelter space. Goodman had also recommended the Johnson administration reach out to Denny, a neighborhood real estate mogul with his own connections to city officials.

Denny has been buying, rehabbing, renting and selling properties in the West Loop for almost a quarter century. His firm, Peppercorn Capital, owns more than 30 buildings and counts McKinsey & Company, Goose Island Beer Company and City Winery among its tenants, according to its website. Denny’s bio on the website states he is “known by many as the King of the West Loop.”

“Work hard, play harder may be his credo, but Phil moves like a jungle cat when there’s a deal to be made,” the bio says. “He didn’t build the west loop but he sure flipped the switch on COOL.”

From 2015 through last year, Denny and his company donated $20,550 to political funds controlled by Burnett, state records show.

In November 2022, the city advanced a plan backed by then-Mayor Lori Lightfoot to help a nonprofit buy a building from Denny. Under terms of the agreement, the city provided $17.6 million and the state $9.6 million so the business incubator mHUB could acquire and fix up 240 N. Ashland. Denny, the owner of the building, would receive $32.5 million in the deal, records show.

Denny posted a Crain’s story about the agreement on his LinkedIn page, commenting, “Thanks, Lori!”

The deal was finalized in April.

By then, Denny had bought another property around the corner, at 1640 W. Walnut St.

For about 20 years, the Cook County Adult Probation Department occupied much of the 41,000-square-foot building, with a food services company using some of the space on the first floor. But when the probation department moved out in 2018, the building owners couldn’t find any more tenants.

So they decided to sell the property. In February, an entity controlled by Denny bought it for $4.7 million, according to public records.

Denny soon raised the rent on the food services company, said its owner, who didn’t want her name used. Realtors listed the rest of the space for rates that would bring in $100,000-$170,000 a month if the entire building was leased out. But it never was.

By September, Denny agreed to let city contractors house migrants at the Walnut Street building.

The owner of the food business said Denny gave them less than 48 hours’ notice before migrants were moved in next door and above her the weekend of Sept. 15.

Since then, the business’s operations have suffered, the tenant told Block Club.

The plumbing system for the building is now overwhelmed: With nearly 900 people using newly installed showers, the building has flooded three times in recent weeks, the tenant said. All of that water collected on the main floor, where the food business is located. Block Club reviewed videos that showed several inches of water flooding a main hallway and storage areas.

The tenant intends to move into a new space next year, but they’ve waited months for the city to approve the permits they need.

“I just want to move,” the tenant said. “I will be honest: It’s extremely frustrating.”

After contacting the Mayor’s Office for weeks, the tenant finally secured a Zoom call in early November with city officials including Beatriz Ponce de León, Johnson’s deputy mayor of Immigrant and Refugee Rights, the tenant told Block Club. The officials seemed “very receptive and listened,” the tenant said.

Several weeks later, the food business was hit with another “mini flood” due to the overwhelmed plumbing system above, the tenant said. This time, at least, the city and Denny jumped into action and helped mitigate the damage.

‘I’m Not In Those Kinds Of Weeds’

In October, the city announced plans to open shelters at two other West Loop buildings Denny owns: 939 W. Lake and 30 N. Racine.

“For the record, I did not give them these locations,” Burnett said at an Oct. 11 community meeting. “They found these locations on their own and told me.”

Residents expressed support for the migrants but frustration about the cluster of shelters in the West Loop.

“I again want to help these people, and I think probably 99 percent of them are looking for jobs and really want help, but we have to be realistic,” said one neighbor. “We’re the ones paying for this.”

After the meeting, Burnett told Denny “no more,” the alderman said in an interview with Block Club. Burnett said Denny promised he wouldn’t let any of his other West Loop properties become shelters.

A couple weeks later, the city dropped its plan to turn 30 N. Racine into a shelter. Burnett said that was because Denny’s rates were “too expensive.” Burnett said he didn’t know the rate, and the city didn’t provide it to Block Club.

The Johnson administration said shelter management is handled by Equitable Social Solutions, while site selection and preparation is led by its subcontractor, ReloShare, a local company that specializes in corporate housing and hotel bookings, according to its website.

Once ReloShare identifies possible shelter spaces, officials from multiple city departments, including the Mayor’s Office, “perform a site assessment to determine if the space is truly viable for use as a temporary shelter,” the Mayor’s Office said in a statement.

City officials then use “all the available information to determine the total cost per bed of the site,” the statement said.

“We want to fit within a particular range so we’re not being price gouged,” Cristina Pacione-Zayas, first deputy chief of staff to the mayor, said in an interview. “If we do a walk-through, that’s when we inform the alders.”

Yet Pacione-Zayas said she doesn’t know how ReloShare picked specific sites, including those in the West Loop.

“I’m not in those kinds of weeds,” she said.

If the city decides to go ahead with a site, it sends its contractors an “email confirmation” that includes the number of beds, per bed rate and length of the deal, the Mayor’s Office said in its statement.

But officials told Block Club the city does not have copies of the full rental agreements or payment records for the West Loop shelters.

“All terms with the building owners are between Equitable, ReloShare, and the owner of the site,” the Mayor’s Office said.

If so, that indicates the Johnson administration is failing to properly monitor what its contractors are doing, Ferguson said.

“The city should, as a matter of contract management, have possession of all documentation related to any and all expenditures of public money,” said Ferguson, who this week was named the new president of the Civic Federation, an independent public policy research and watchdog organization.

Far More Than Office Rent

In November, after months of questions and public records requests, the city shared the summaries of what it’s paying to use the West Loop buildings. The figures were different for each location and based on a nightly rate for each bed. With hundreds of people staying in each of the buildings, the costs would add up fast.

The agreement for Goodman and Hollis’ building at 344 N. Ogden allowed the city to move in as many as 1,200 people by late September at a cost of $18.60 per bed each night. As of Dec. 1, this location had 1,128 migrants, according to an online dashboard from the City Council’s Committee on Immigrant and Refugee Rights. That means the city is currently obligated to pay about $629,000 a month.

Similarly, the city is committed to pay about $170,000 a month for the 300 migrants staying at Denny’s West Lake building, and about $470,000 more for 875 people housed at his Walnut property, according to the information provided to Block Club.

In addition to the per-bed rates, the city is responsible for paying Equitable an “administrative fee” of 12.4 percent of the total leasing costs.

Under those terms, the city has agreed to pay far more than the properties would have generated through office rent.

For example, the $629,000 the city is paying for the Ogden property would be several times greater than the $100,000-$200,000 the building would have produced in office rent at rates listed online with realtors. And that’s if the whole building had been leased out, which wasn’t the case.

Similarly, the city’s contracted payments for Denny’s property at 1640 W. Walnut appear to be two or three times the $100,000-$200,000 he would have received each month if he had rented the entire building as business space.

City officials said the per-bed rates are higher than office rent because the landlords and contractor have to cover added expenses, including conversion construction costs, higher utility payments, added insurance and additional maintenance. But they didn’t provide specific figures for the buildings.

The city also hasn’t disclosed how much money is going to the building owners and how much is going to contractor Equitable and subcontractor ReloShare.

On Nov. 18, the city opened a fourth shelter in the 27th ward — essentially a replacement for the Denny property on Racine that was deemed too costly, Burnett said. The latest shelter took over part of an office building at 1308 N. Elston Ave. that had a significant number of vacancies.

The Elston property is owned by Farpoint, Goodman’s firm. Officials say as many as 1,000 people will stay there at a cost to the city of $21.80 a night, or as much as $654,000 a month — more than any of the other shelters in the 27th Ward.

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