Goodman, city fend off lakefront landowners’ suit alleging collusion killed $30M deal

Lakefront landowners who alleged Chicago officials and veteran developer Scott Goodman illegally conspired to kill a $30 million lakefront development site deal have fallen short in federal court.

A federal judge late last month ruled in favor of Goodman and the city of Chicago, and against developers challenging the influence of aldermanic privilege, the unwritten rule that gives Chicago City Council members almost unchallenged power over construction proposals in their wards.

The lawsuit centered around plans for a vacant property in Bronzeville next to the proposed multi-billion dollar Bronzeville Lakefront megaproject led by local developer Goodman. 

A group of real estate investors that owns a piece of land at 2545-55 South King Drive, adjacent to the megaproject, sued Goodman, the city and former Alderwoman Sophia King. They alleged that King told a potential buyer, data center developer Equinix, which was eyeing a $30 million purchase, that the city would not ultimately approve construction of a proposed data center there because the city wanted to buy the land at a lower price.

King also allegedly tried to steer Equinix toward building a data center on the city’s adjacent land, the former Michael Reese hospital site, instead. The city has a development agreement in place for that property with GRIT Development, an affiliate of Scott Goodman’s firm Farpoint Development. The two firms were named as defendants in the lawsuit, as well.

A federal judge on Feb. 22 dismissed the landowners’ claims that King’s influence ruined future development prospects for the property and amounted to unconstitutional government taking.

The investment group owns the land next to the Michael Reese site under an LLC called King Sykes. It is made up of real estate investors Michael Madura and Brett Walrod and commercial real estate brokers Steve Disse and Jeff Devine.

When the group found Equinix as a potential buyer for the site, King allegedly told Equinix that the city hoped to purchase the property and wanted to squash other proposals to deflate the price of the land.

The lawsuit challenged the longstanding practice of aldermanic privilege in Chicago, which asserts that developments can only receive approval from the city if the alderman for the ward voices support. In this case, King’s vocal opposition to a pre-submission proposal from Equinix demonstrated the reach of the practice.

“According to King Sykes, Alderwoman King responded to these submissions with overt hostility  that prompted commentary by various city officials expressing disbelief concerning King’s opposition and flagging it as a ‘good example of [aldermanic] privilege,’” a summary of the filing included in the ruling states.

The suit alleges that by using this power, King and the city rendered the land undesirable to Equinix and future buyers who would not want to fight a losing battle against the city.

Judge John J. Tharp Jr. of the federal Northern District of Illinois ruled that because Equinix had only made a pre-submission proposal to King rather than putting forth formal development plans to the city, the former alderwoman’s conversation with Equinix alone meant the landowners’ case lacked legal standing.

Legal representatives of King Sykes and the city did not respond to requests for comment. 

The chilling effect on future development is not valid to litigate, either, according to Tharp, because King did not seek re-election and no longer holds public office.

“It is a fact of urban life that renewal and redevelopment projects may prove advantageous for some groups while leaving others feeling aggrieved,” Tharp wrote.

Tharp dismissed the case without prejudice, however, meaning the landowner group can file a new lawsuit regarding the issue, if it chooses.

Meanwhile, according to the development agreement with GRIT, the city will sell off the Michael Reese property in pieces to GRIT over 14 years for $97 million. The redevelopment plans will result in 8 million square feet of buildings, including a medical research facility. The city plans to chip in $60 million for infrastructure improvements.

In 2020, GRIT proposed buying the King Sykes property for $28.5 million, but the group accepted Equinix’s offer of $30 million for the site instead. Because Equinix’s offer was contingent on city zoning approvals, it fell apart when King objected.

The plaintiffs also alleged that the city told the Sykes owners that they needed to lower their asking price to $15 million to gain approval, which ultimately is what Goodman offered to acquire the land. The owners sought $15 million in damages to make up for the lost land value.

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