Monday, September 15, 2014 8:56:14 AM
Big profit for Pritzkers on costly Chicago FBI deal
President Barack Obama announces Penny Pritzker as his nominee for secretary of commerce on May 2, 2013, in Washington, D.C. | Getty Images
A deal involving the federal government’s most expensive lease in Chicago produced millions of dollars in profits for a development group that included Penny Pritzker, a top campaign fund-raiser for President Barack Obama who is now his commerce secretary, a Chicago Sun-Times / Better Government Association investigation has found.
The developers also included Jack Higgins, a friend and political backer of former Mayor Richard M. Daley.
Over the 14-year term of the lease, the government will pay $280 million in rent and operating expenses for the Near West Side property, which houses the FBI’s Chicago headquarters.
That’s more than double what it cost to build the complex at 2111 W. Roosevelt Rd., which opened in 2006, records show.
Higgins Development Partners was awarded the deal for the build-to-lease project in 2003 by the federal General Services Administration.
In a venture they called FBI Chicago Partners, L.L.C., Higgins was joined in the project by USAA Real Estate Company, a San Antonio, Texas, company that has a regional office in Chicago, and the business interests of the extended Pritzker clan, one of the nation’s wealthiest families.
At the time, Penny Pritzker was head of the Pritzker Realty Group, which she founded and which oversaw much of the Chicago family’s real estate portfolio, including the FBI project.
The Pritzker Realty Group also held a stake at one point in Higgins Development Partners, according to documents Higgins filed in an unrelated deal earlier this year. Those records show the Pritzkers gave Higgins a loan for an undisclosed amount to buy out their share of his business — and that Higgins ended up defaulting on the loan, the Sun-Times reported last week.
The Pritzkers and USAA were the financiers on the FBI deal, providing capital for construction and development costs. Higgins handled contract negotiations and construction.
The Chicago FBI offices cost $125 million to build, according to records and interviews.
In 2009, three years after the complex was completed, the developers sold their interest to an affiliate of USAA for $170 million — $45 million more than the construction costs, records show.
According to Higgins, not all of that was profit, though. He said unspecified costs cut into the profit margin. He said he could not provide any details or say what the profit was.
The Higgins group wasn’t the low bidder to win the FBI project. Hines Chicago Investments LLC offered to build the headquarters for a lower price, records show, though officials would not say how much the Hines or Higgins bids were.
But the GSA — which handles real estate services for the federal government — instead awarded the lucrative project to Higgins, which with the Pritzkers and USAA then formed FBI Chicago Partners.
Hines filed a protest with the government but lost. The GSA said its decision took into account design and technical factors, and it was allowed to consider price as being “significantly less important.”
A Hines representative would not comment.
In an interview, Higgins said politics played no role in the awarding of the contract.
“There just isn’t politics involved in these things,” said Higgins, who also built the Chicago Police Department’s headquarters building at 35th and State.
Higgins said that “in my opinion, if you try and pollute the process with that type of interference,” it would hurt a developer’s chances with the GSA.
Floyd D. Anderson, a partner in the architectural firm Lohan Anderson, designer of the FBI building, said the government looks for “best value” with design features that make the building easier to maintain.
“There is more to design than how it looks,” Anderson said, citing his firm’s durable interior finishes for walls and floors as examples. “I think our design was basically a better mousetrap.”
Representatives of Pritzker and USAA declined to comment on details of the deal or the profit split, citing a confidentiality agreement among the partners.
Pritzker — an heir to a family fortune founded on the Hyatt hotel chain and manufacturing businesses — chaired Obama’s national campaign finance committee during his 2008 presidential run, heading fund-raising efforts that raised nearly $750 million, then served on Obama’s transition team and co-chaired his 2012 re-election campaign.
She raised more than $500,000 as a “bundler” for Obama’s 2012 campaign and has given a total of $25,700 herself to his campaigns, campaign-finance records records show.
She took office as commerce secretary in June 2013. Previously, she had removed herself from consideration for the same post after Obama was first elected president, citing business obligations.
Pritzker formerly chaired Superior Bank and was later a board member of the bank’s parent company. The Hinsdale savings and loan co-owned by her family collapsed in 2001 under the weight of subprime mortgage losses and the Federal Deposit Insurance Corp. covered most depositor losses. Later, the Pritzkers worked out a deal to reimburse the deposit insurance fund $456 million, a deal that still left the federal agency $285 million in the hole.
The deal to build a consolidated Chicago FBI headquarters brought together what had been five local FBI offices, putting them under one roof with double the total previous space. It was built during a post-9/11 spending spree aimed at improving security for FBI agents working outside of Washington, D.C., with private contractors hired to design, build and lease dozens of campus-like complexes nationwide.
The Chicago field office sits on an isolated 10.8 acres about two miles west of downtown, surrounded by green space and fenced off from the public. It is the federal agency’s largest stand-alone, leased field office.
Though the Chicago FBI campus lease costs taxpayers roughly $20 million a year, Higgins said the government “would not be able to build that building cheaper than the private sector was able to do.”
But the project was singled out in 2008 by the Government Accountability Office — the investigative arm of Congress — as an example of wasteful spending. The GAO found the federal government could have saved more than $40 million over 30 years had taxpayers built and owned the Chicago FBI complex, rather than pay rent to private developers.
Higgins is facing IRS liens of nearly $2.8 million for unpaid personal income taxes starting with the 2005 tax year and including $771,721 in taxes the IRS said he owed for 2009 — the year he sold his interest in the FBI building.
Asked whether he owed taxes on his profits from the sale of the FBI building, Higgins said that profits and losses from his business projects are “intertwined” on his tax return and that “one doesn’t have anything specifically to do with another.”
He said he is paying the back taxes under a repayment plan worked out with the IRS.
This column was written and reported by the Better Government Association’s Chuck Neubauer and Sandy Bergo.
http://politics.suntimes.com/article/chicago/big-profit-pritzkers-costly-chicago-fbi-deal/sun-09142014-330pm
President Barack Obama announces Penny Pritzker as his nominee for secretary of commerce on May 2, 2013, in Washington, D.C. | Getty Images
A deal involving the federal government’s most expensive lease in Chicago produced millions of dollars in profits for a development group that included Penny Pritzker, a top campaign fund-raiser for President Barack Obama who is now his commerce secretary, a Chicago Sun-Times / Better Government Association investigation has found.
The developers also included Jack Higgins, a friend and political backer of former Mayor Richard M. Daley.
Over the 14-year term of the lease, the government will pay $280 million in rent and operating expenses for the Near West Side property, which houses the FBI’s Chicago headquarters.
That’s more than double what it cost to build the complex at 2111 W. Roosevelt Rd., which opened in 2006, records show.
Higgins Development Partners was awarded the deal for the build-to-lease project in 2003 by the federal General Services Administration.
In a venture they called FBI Chicago Partners, L.L.C., Higgins was joined in the project by USAA Real Estate Company, a San Antonio, Texas, company that has a regional office in Chicago, and the business interests of the extended Pritzker clan, one of the nation’s wealthiest families.
At the time, Penny Pritzker was head of the Pritzker Realty Group, which she founded and which oversaw much of the Chicago family’s real estate portfolio, including the FBI project.
The Pritzker Realty Group also held a stake at one point in Higgins Development Partners, according to documents Higgins filed in an unrelated deal earlier this year. Those records show the Pritzkers gave Higgins a loan for an undisclosed amount to buy out their share of his business — and that Higgins ended up defaulting on the loan, the Sun-Times reported last week.
The Pritzkers and USAA were the financiers on the FBI deal, providing capital for construction and development costs. Higgins handled contract negotiations and construction.
The Chicago FBI offices cost $125 million to build, according to records and interviews.
In 2009, three years after the complex was completed, the developers sold their interest to an affiliate of USAA for $170 million — $45 million more than the construction costs, records show.
According to Higgins, not all of that was profit, though. He said unspecified costs cut into the profit margin. He said he could not provide any details or say what the profit was.
The Higgins group wasn’t the low bidder to win the FBI project. Hines Chicago Investments LLC offered to build the headquarters for a lower price, records show, though officials would not say how much the Hines or Higgins bids were.
But the GSA — which handles real estate services for the federal government — instead awarded the lucrative project to Higgins, which with the Pritzkers and USAA then formed FBI Chicago Partners.
Hines filed a protest with the government but lost. The GSA said its decision took into account design and technical factors, and it was allowed to consider price as being “significantly less important.”
A Hines representative would not comment.
In an interview, Higgins said politics played no role in the awarding of the contract.
“There just isn’t politics involved in these things,” said Higgins, who also built the Chicago Police Department’s headquarters building at 35th and State.
Higgins said that “in my opinion, if you try and pollute the process with that type of interference,” it would hurt a developer’s chances with the GSA.
Floyd D. Anderson, a partner in the architectural firm Lohan Anderson, designer of the FBI building, said the government looks for “best value” with design features that make the building easier to maintain.
“There is more to design than how it looks,” Anderson said, citing his firm’s durable interior finishes for walls and floors as examples. “I think our design was basically a better mousetrap.”
Representatives of Pritzker and USAA declined to comment on details of the deal or the profit split, citing a confidentiality agreement among the partners.
Pritzker — an heir to a family fortune founded on the Hyatt hotel chain and manufacturing businesses — chaired Obama’s national campaign finance committee during his 2008 presidential run, heading fund-raising efforts that raised nearly $750 million, then served on Obama’s transition team and co-chaired his 2012 re-election campaign.
She raised more than $500,000 as a “bundler” for Obama’s 2012 campaign and has given a total of $25,700 herself to his campaigns, campaign-finance records records show.
She took office as commerce secretary in June 2013. Previously, she had removed herself from consideration for the same post after Obama was first elected president, citing business obligations.
Pritzker formerly chaired Superior Bank and was later a board member of the bank’s parent company. The Hinsdale savings and loan co-owned by her family collapsed in 2001 under the weight of subprime mortgage losses and the Federal Deposit Insurance Corp. covered most depositor losses. Later, the Pritzkers worked out a deal to reimburse the deposit insurance fund $456 million, a deal that still left the federal agency $285 million in the hole.
The deal to build a consolidated Chicago FBI headquarters brought together what had been five local FBI offices, putting them under one roof with double the total previous space. It was built during a post-9/11 spending spree aimed at improving security for FBI agents working outside of Washington, D.C., with private contractors hired to design, build and lease dozens of campus-like complexes nationwide.
The Chicago field office sits on an isolated 10.8 acres about two miles west of downtown, surrounded by green space and fenced off from the public. It is the federal agency’s largest stand-alone, leased field office.
Though the Chicago FBI campus lease costs taxpayers roughly $20 million a year, Higgins said the government “would not be able to build that building cheaper than the private sector was able to do.”
But the project was singled out in 2008 by the Government Accountability Office — the investigative arm of Congress — as an example of wasteful spending. The GAO found the federal government could have saved more than $40 million over 30 years had taxpayers built and owned the Chicago FBI complex, rather than pay rent to private developers.
Higgins is facing IRS liens of nearly $2.8 million for unpaid personal income taxes starting with the 2005 tax year and including $771,721 in taxes the IRS said he owed for 2009 — the year he sold his interest in the FBI building.
Asked whether he owed taxes on his profits from the sale of the FBI building, Higgins said that profits and losses from his business projects are “intertwined” on his tax return and that “one doesn’t have anything specifically to do with another.”
He said he is paying the back taxes under a repayment plan worked out with the IRS.
This column was written and reported by the Better Government Association’s Chuck Neubauer and Sandy Bergo.
http://politics.suntimes.com/article/chicago/big-profit-pritzkers-costly-chicago-fbi-deal/sun-09142014-330pm
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