Editorial: Chicago teachers ponder funding Lincoln Yards, a development CTU once protested. Watch out.

Two mayors and a pandemic ago, Chicago made a huge commitment to Lincoln Yards, the ambitious plan to revitalize a prominent North Side corridor running from Lincoln Park to Bucktown.

In 2019, shortly before now ex-Mayor Lori Lightfoot replaced Mayor Rahm Emanuel, the City Council approved up to $1.3 billion of tax increment financing to support this megaproject. As this page said at the time, that massive TIF deal turned Chicago taxpayers into Lincoln Yards’ most important stakeholders.

Fast-forward four years, and commercial real estate is on the brink of a crisis, with a slew of office properties sitting mostly vacant in the aftermath of COVID-19. Sterling Bay, the high-flying Chicago real estate company behind Lincoln Yards, is seeking new money to recapitalize the 53-acre, mixed-use development it had planned.

Crain’s Chicago Business reported earlier this month that Sterling Bay made a detailed pitch to the $12 billion Chicago Teachers’ Pension Fund, potentially seeking a $300 million-plus commitment to replace the project’s initial financial backers at a deep discount.

The idea of pitching the now-powerful teachers certainly has audacity going for it.

Members of the Chicago Teachers Union loudly objected to creating the TIF district, which arguably diverts tax revenues away from Chicago Public Schools, among other budget priorities, to pay for roads, bridges, mass transit and other infrastructure improvements needed at the Lincoln Yards site. New Mayor Brandon Johnson served as a paid organizer for the CTU and already has shown alarming signs of still bending to the will of his former union bosses. Given the force of those initial objections by the CTU, the union now turning around and funding that very detested development would be a hypocritical pivot, to say the least.

Still, given how the teachers have positioned themselves to help run the city, getting their pension fund to buy into Lincoln Yards would be an amazing coup for Sterling Bay, which recently complained to Bloomberg News that Lightfoot had put a brake on issuing necessary permits. One influential Chicago alderman, Gilbert Villegas of the 36th Ward, has made some noise about encouraging local pension funds to sink their money into local development projects.

After all, what’s so hard about orchestrating a massive real estate deal, especially when the office market teeters on the brink of collapse? If Donald Trump can do it — or at least pompously claim to do it — why not Chicago’s underfunded public pensions?

As they say to horses getting ready to make a run toward the cliffs, “Whoa!”

We’re skeptical that the financial stewards of the teachers’ pension (or those of any other local public pension fund) have the expertise, staying power, and capacity for risk to put a penny into Lincoln Yards, let alone $300 million of their members’ money. Playing grave dancer on a gigantic, stalled project doesn’t sound to us like a prudent strategy, especially for a fund that could ill-afford to write off a nine-figure investment.

You might wonder why public pension funds would even consider such a thing. The reality is that public pensions have been active investors in real estate for many years, and, if done right, those investments can make good sense.

Nationwide, public pensions are underfunded by more than $1.4 trillion, with Illinois’ public pensions among the worst funded. To make up part of the shortfall, they have embraced alternatives to bonds and other traditional pension investments, seeking greater returns.

As of 2021, the State Universities Retirement System of Illinois had some of the largest real estate holdings among public pensions. But its biggest investments were in broad-based funds run by professional real estate experts. A few very large pension systems, including California’s and Canada’s, have built in-house teams of real estate pros capable of conducting due diligence on big projects. The Canadians famously bought into the Chicago Skyway.

Still, it’s overly risky for public pensions lacking in experience to make large-scale, direct investments in individual projects, as the Chicago teachers are being asked to do.

Sterling Bay said in a statement that its pitch to the Teachers’ Fund board went well. “The board voted unanimously to investigate the opportunity further and the conversations continue. Lincoln Yards presents a once-in-a-lifetime opportunity, and bringing together Sterling Bay, a hometown development firm, with CTPF, a hometown pension fund, to kickstart all the project’s public benefits would be an incredible Chicago story.”

Lincoln Yards could be the deal of a lifetime for the teachers. But if it isn’t, look out below.

We support Lincoln Yards, and hope the project gets back on track. The City Council, and by extension Chicago taxpayers, have put a lot of skin into the game, and the stretch of riverfront property slated for potentially transformative development is crying out for TLC.

But barring a miraculous turnaround in market conditions, it appears the project, at best, is going to take longer to cross the finish line than the roughly 10-year build-out its developers anticipated.

In retrospect, Lincoln Yards probably was too big and bold an undertaking to deliver in a mere decade, even without a pandemic and office bust. As it stands today, buyers beware.

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