JDL Buying South Side of Lincoln Yards as JP Morgan Exits

Jim Letchinger is holding open the door for Jamie Dimon to exit the troubled Lincoln Yards megadevelopment on Chicago’s North Side.

Letchinger’s Chicago-based firm, with financial backing from investment firm Kayne Anderson, is in negotiations to buy the entire 53-acre site of the proposed $6 billion plan on either side of the Chicago River between Lincoln Park and Bucktown, according to multiple sources familiar with the matter.

JDL was reported to be in negotiations with lender Bank OZK for the northern portion last week, while the southern portion was still controlled by JP Morgan’s investment arm and its partner, Chicago-based Sterling Bay, which was previously leading the development effort.

Sterling Bay lost control of the northern portion of the site this year after its equity partner Lone Star Funds backed out of funding its carrying costs, and Bank OZK stripped the property to settle a $128 million loan that the Lone Star and Sterling venture took out against that section.

Los Angeles-based Kayne Anderson’s involvement as JDL’s equity partner was previously unreported but follows Kayne first eyeing the project and discussing it with city officials last year.

Letchinger and JP Morgan Asset Management declined to comment. Sterling Bay and Kayne Anderson didn’t immediately return requests for comment.

The price of the southern section of the property is not clear, but it could change hands quickly, sources said. Bank OZK has said that it plans to sell the northern portion for about $84 million, the amount that was still owed by the Lone Star and Sterling Bay venture following the lender writing down $38 million from the debt’s original face value.

Sterling Bay helped to facilitate meetings between Kayne and city planning leaders last year, while Sterling was still seeking new financial backers to allow for Lone Star and JP Morgan to bow out amid the development team’s delays with getting funding for infrastructure work on the site. Under the current redevelopment agreement with the city for the site, Sterling Bay and its partners were on the hook for over $400 million of infrastructure work, including the construction of a bridge over the river between the two sites.

Sterling Bay has struggled to get the financing to kickstart such work, leading to Lone Star and JP Morgan growing impatient and eventually seeking exits from the project. That sent Sterling Bay into the market for rescue capital, with groups including a Chicago teacher’s pension fund turning down the opportunity to enter the project.

If Kayne and JDL close deals to buy the sites from Bank OZK and JP Morgan Asset Management, the purchase prices would likely amount to a fraction of the investment the sellers and Sterling Bay put into assembling the land. Sterling Bay and Lone Star paid $140 million just for the former A. Finkl & Sons steel plant site on the north side of the river, which comprises only a part of the northern section assembly. It’s unclear if JDL’s deals for the entire project site will approach that number.

Furthermore, closing a deal may require negotiation with the city, as well, since the site would likely be repositioned to focus more on residential development, with less emphasis on office space than the previous team first envisioned due to the dropoff in demand for workspace. Lincoln Yards was approved for up to 14.5 million square feet of buildings.

Bank OZK’s dealings with Sterling Bay in the area aren’t over. The bank provided a $125 million loan to the developer for the newly built 320,000-square-foot life sciences building just outside the boundaries of Lincoln Yards’ southern portion, with the building sitting vacant and the debt coming due later this year after its maturity was previously extended.

While the building isn’t part of the deal being explored by JDL and Kayne, it’s unclear whether it could impact their development ambitions for the neighborhood if it continues to struggle.