To finance One Chicago Square megaproject, JDL drew from a range of backers

The $850M+ megadevelopment secured a big loan from Bank OZK, and investments from Square Mile and a branch of a Chinese auto parts empire

Mar.March 21, 2019 02:00 PM

From left: JDL’s Jim Letchinger, George Gleason, Chairman of Bank OZK and Pin Ni, president of Wanxiang America with a rendering of One Chicago Square

For its next major Chicago project, JDL Development assembled the financing from a cross-section of backers.

Those included Wanxiang America Real Estate — a branch of a Chinese auto parts empire — along with Bank OZK and Square Mile Capital. Arkansas-based Bank OZK has been one of the most significant real estate lenders of late and New York-based Square Mile has invested hundreds of millions of dollars into Chicago projects.

Construction has started on One Chicago Square, which will feature a 77-story tower and a 50-story tower sprouting from a common 10-story podium at the corner of State Street and Chicago Avenue, which the Archdiocese of Chicago sold to JDL in 2017 for a reported $110 million. The development will feature 795 luxury apartments, 75 condos and 50,000 square feet of office space. Retail space will include a Whole Foods and a 100,000-square-foot-plus Lifetime Fitness gym.

Matt Drummond, managing director of New York-based Square Mile Capital Management, said a number of factors led his firm to commit $260 million to the $850 million project. One of those included JDL founder Jim Letchinger’s success with the No. 9 Walton luxury condo tower a few blocks away in the Gold Coast.

“We were impressed with the kind of project he can deliver,” Drummond said Thursday. “He has an innate ability to understand what clients want.”

Letchinger this week declined to provide any financing details though Cook County records show Bank OZK provided $475 million for the project, in a deal that closed March 12.

The bank has been among the most aggressive real estate lenders in the country, and CEO George Gleason earlier this year signaled it would continue to make big construction loans in 2019. The regional bank formerly known as Bank of the Ozarks, has become one of the biggest condo lenders in New York, Los Angeles and Miami and is widely seen as a barometer of how those real estate markets are performing.

Critics have questioned whether Bank OZK is overly exposed in South Florida in particular, one of the country’s most speculative real estate markets. They’ve drawn comparisons to Chicago-based Corus Bank, which aggressively financed condo construction in the state but was seized by regulators in 2009 after the condo market collapsed.

Bank OZK, though, said it reduces its risk because it “is always the senior secured lender.”

Square Mile’s Drummond said Bank OZK’s involvement in the One Chicago Square deal didn’t play a role in his investment, but he’s “done a lot of business with the bank over the years.”

“We’re very comfortable with them,” he added.

Wanxiang, meanwhile, was a small investor in One Chicago Square until Chicago-based Sterling Bay dropped out of its partnership on the project with JDL and Wanxiang agreed to take a bigger position, according to Crain’s.

The firm was started in 1994 as the U.S. outpost of Chinese auto parts giant Wanxiang Group.

It has grown into a more than $4 billion company with interests in auto parts, real estate and renewable energy. Its other Chicago investments include the Ace Hotel in Fulton Market, the Conrad hotel off Michigan Avenue and Riverside Investment & Development’s office tower at 150 North Riverside Plaza, according to Crain’s.

Drummond said Square Mile, a nationwide real estate and investment management firm, has put millions of dollars in Chicago projects over the years.

The mixed-use nature of One Chicago Square made it attractive, he said, for a number of reasons, including Whole Foods’ commitment to an anchor lease, which ensures a solid retail tenant and eliminates some of the risk of the project.

The condo portion of the project is in good position too, he said, thanks to the success of No. 9 Walton, which has created buzz while dominating the list of pricey residential sales since late 2017.

The new development is not slated to be ready until 2022. That means the building could open in a much different market than exists right now.

Industry experts worry that the real estate market’s sustained up cycle could be nearing the end. Chicago has been in the middle of a multifamily building boom for the past three years, with some 9,000 new units added. And another 8,000 more apartments are expected to come online by the end of 2021, before One Chicago Square opens.

But recent population growth in Downtown neighborhoods — demographics that include more educated and affluent residents and a favorable cost of living — make investments in the city appealing, Drummond said.

“There’s not a lot on the horizon in three years,” he said. “I don’t have a crystal ball but we feel good about the [value]…and we feel good about the project.”

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