In the toolkit of development incentives, one framework that has been specifically designed to lure investment and jobs to underserved communities throughout Illinois is the state-defined and federally-approved Opportunity Zone program. Formed out of the passage of the Federal Tax Cuts and Jobs Act of 2017, the program allows the state to designate low-income census tracts as areas targeted for long-term investment by providing capital gains tax deferrals to developers who build and hold onto their projects.
To qualify, a community (defined by census tracts) must meet a number of thresholds related to high poverty levels and unemployment rates. Throughout Illinois, 1,305 total census tracts meet the threshold for these special designations, of which state legislators were able to nominate just 25%, or 327 tracts, to become federally-recognized Opportunity Zones. Within the city of Chicago, 500 census tracts meet the standards, but only 133 were recommended to the state for consideration.
One Chicago community that qualified, and was formally designated as an Opportunity Zone, is the Pullman neighborhood on the city’s far south side. Known as the home to the old Pullman Palace Car Company, the historic factory town entered into a long period of economic decline during the second half of the twentieth century. However, recent investments, which have brought some big names to the region, are not only creating new jobs and bolstering the city’s tax base, but helping to reinvent Pullman as the model industrial community of the twenty-first century.
David Doig, president of Chicago Neighborhood Initiatives (CNI), a developer which has focused much of its efforts in the last decade on the Pullman area, has been at the forefront of many of the neighborhood’s big development deals, including projects for companies such as the soap maker Method, hydroponic produce grower Gotham Greens, grocer Whole Foods, Amazon and SC Johnson.
But it was the 400,000-square-foot spec facility that SC Johnson eventually leased where CNI, along with collaborators Ryan Companies and Allstate, utilized the Opportunity Zone incentives to bring the project to reality.
The lesson that we learned is that sometimes to get these things going, you’ve got to prime the pump and need some public support.
David Doig, president of CNI
“The lesson that we learned is that sometimes to get these things going, you’ve got to prime the pump and need some public support,” Doig says of his experience with development in Pullman. “But the thing we’ve proven after a decade is that the market has realized the value and the amount of public subsidies have diminished but things like Opportunity Zones have helped mitigate those risks.”
And it’s this need to help offset some of the risk in bringing such new industrial facilities to the Pullman area that Curt Pascoe, Ryan Companies’ director of real estate development, emphasizes that an Opportunity Zone can provide.
“One thing Opportunity Zones do require is some level of risk on behalf of the Opportunity Zone entity — so, you’re gaining tax benefits in exchange for taking risk,” Pascoe says of the arrangement. “And in real estate, one example of risk is building a speculative warehouse [in Pullman].”
Indeed, at the time of its announcement, the proposed facility was noted for being the first speculative development for the neighborhood in decades. And while it may have been seen as a big risk to take on such a project, it was the combination of location, demand for jobs, and Opportunity Zone status that not only helped to offset some of the risk, but helped continue to push forward the investment momentum in Pullman that had been building up over the last several years.
“What drew us to Pullman was that we really, really liked the location, but no one had tried to build a speculative warehouse [there] in a very long time,” Pascoe says of the deal. “There are known markets for industrial real estate along the I-55 corridor, around O’Hare, and down 53 by Joliet, but we were the first to consider a speculative building on the South Side and we did it because we believed in the location and we believed that if we built it, they would come.”
And they did come. During the construction of the building, Ryan and CNI worked out a deal with SC Johnson, who leased the entire 400,000-square-foot building. Most recently, Ryan and CNI teamed up to develop Amazon’s distribution hub in Pullman, which both noted was done without any public subsidies or incentives.
As for Pullman’s future? Both Doig and Pascoe see much more opportunity in the neighborhood and suggest that the collective efforts between local and federal leaders and investors have proven that Chicago’s south side is a viable place to do business.
“I’m a big believer in the area,” says Pascoe. “When you get names like Whole Foods, Gotham Greens, SC Johnson and Amazon all investing their resources into a specific neighborhood, other companies take notice.”
This article also appears in the March 2021 issue of Chicago Industrial Properties.
