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Chicago becoming a haven for buildings with no people?

Awesome. Tear down structures that used to house office, retail & housing and replace them with data center or logistic buildings that house machines but not people.

How did Chicago come to this? Years of excellent government.

Former suburban Chicago corporate headquarters give way to data and logistics centers in post-pandemic landscape

By Robert Channick, Chicago Tribune

Published: Sep 03, 2023

For years, a drive on the highways and byways of Chicago would reveal a string of sprawling corporate campuses, from Allstate along I-294 to Sears, built off its own interstate exchange at I-90.

But the view is changing rapidly these days as signs come down, buildings are razed and iconic office complexes are supplanted by massive data and logistics centers.

Welcome to the post-pandemic corporate landscape, where hybrid working has turned once-bustling headquarters into monuments to a bygone era.

“The office market, let’s face it, is pretty much dead,” said Hossein Fateh, founder and CEO of CloudHQ, a Washington D.C.-based developer building a data center on the site of the former United Airlines headquarters in Mount Prospect.

Catalyzed by the pandemic, the demise of corporate campuses has created a development explosion, as dormant office space is transformed into industrial use for the digital age. Data centers provide the infrastructure for online commerce, while logistics centers deliver the goods to your doorstep.

The warehouse facilities also deliver tax revenue for municipalities, construction jobs and depending on the use, some permanent jobs as well. But the economy-boosting days of 5,000 employees descending on a community may be a thing of the past.

“Large corporate campuses are out of step with today’s work habits as people are working more remotely,” said Dan Seals, CEO of Intersect Illinois, the state’s public-private economic development arm. “Because of Illinois’ attractiveness to data centers and logistics companies, we’re seeing a lot of those folks take an interest in these campuses.”

Chicago ranks among the top markets for both data centers and logistics centers, with a number of large projects in the development pipeline.

Data centers: United, Meta and coming soon, Sears?

Data Centers are usually large warehouse facilities housing racks of computer systems including servers, storage and network equipment. The centers, which provide the infrastructure for everything from cloud services and social media to artificial intelligence, require massive amounts of electricity, but relatively few people to operate.

Chicago is tied with Dallas as the third largest data center market in the U.S. at about 4.8 million square feet, according to a report by JLL. Northern Virginia is by far the largest data center market at 47.7 million square feet, followed by Northern California at nearly 7.2 million square feet.

The Chicago market is ramping up rapidly in new data center construction with about 2.2 million square feet in the pipeline, outpaced only by Northern Virginia, Northern California and Austin/San Antonio, according to JLL.

One of the largest data center projects may be heading to the 273-acre Sears corporate campus in Hoffman Estates.

When Sears moved from its namesake Chicago tower to build a new corporate headquarters in Hoffman Estates corporate campus in 1992, it was heralded as an economic boon for the northwest suburb, bringing 5,000 jobs, infrastructure improvements and additional development.

Three decades later, Sears is a shell of its former self, its once-ubiquitous department stores dwindling to a handful of locations and its campus now a veritable ghost town.

Transformco, an entity controlled by former Sears CEO and its largest shareholder, Edward Lampert, bought the retailer out of bankruptcy in 2019 and has reportedly struck a deal to sell its campus to Dallas-based Compass, with plans to convert it to a data center.

A similar deal by California-based Yondr fell through last year over concerns about high Cook County property taxes, but Compass is still kicking the tires, with due diligence on the acquisition extended to September, according to a source familiar with the matter.

Transformco and Compass did not respond to requests for comment.

Sears acquired 788 acres north of what is now the Jane Addams Memorial Tollway for $87 million in 1990, an assemblage of parcels that were vacant save for the Poplar Creek Music Theatre, an outdoor concert venue that attracted many major acts during its 15-year run.

The new headquarters opened in 1992, growing into a 2.3 million-square-foot corporate office on 273 acres, including 100 acres of undeveloped land. The remaining 500-plus acres were slated for sale and development, with projections it would lead to 10 million square feet of office space.

That never happened, but the Sears headquarters was a significant catalyst for retail and residential growth in the area.

“It really ended up building another huge part of the city when Sears came in,” said longtime Hoffman Estates Mayor Bill McLeod, who was a village trustee when Sears moved into its headquarters more than 30 years ago. “The sewers were oversized, the water mains were oversized, we had tollway improvements, highway improvements. And then we had a huge influx of housing development and commercial and retail. Sears was a definite plus for us.”

If the data center deal goes through, Hoffman Estates will see a different kind of economic windfall, with robust property taxes, a share of the proceeds from mammoth electricity bills and other benefits — with essentially no drains on community resources.

The computers, which are usually maintained by a skeleton crew of employees, don’t send kids to school, call for assistance from the police or medical personnel, or clog up the roads getting to work.

On the downside, the computers don’t go to lunch either, or make impulse purchases or buy a nearby home. But in the wake of dormant corporate campuses, it is a decided win for many communities looking to fill the economic void.

Bound by a nondisclosure agreement, McLeod would neither confirm nor deny that Compass has a deal to buy the Sears site. But he said the reported data center would be a “very good thing” for Hoffman Estates, if it comes to fruition.

“It’s a beautiful building, but who wants 2.3 million square feet of office space?” McLeod said. “At this point, a data center is probably more lucrative than an office center.”

In August 2022, CloudHQ began demolition of the former United Airlines corporate headquarters in Mount Prospect, with plans to build a $2.5 billion data center campus.

United vacated the 50-acre site in 2007, moving its offices to Willis Tower.

The site, located about three miles northwest of O’Hare International Airport, is now cleared and the first of three buildings is slated to open next year, creating 1,000 construction jobs. When the project is completed, it is expected to bring 300 full-time jobs and significant revenue to Mount Prospect.

“We are going to be, as far as we know, the biggest data center in the Midwest,” said CloudHQ CEO Fateh, 56.

Mount Prospect is the first project in Illinois for CloudHQ, which has 12 data centers worldwide, including three in Virginia. Fateh said the state’s Data Center Investment Program was “extremely helpful” in drawing CloudHQ to Illinois. If all goes well, it will be the first of several data centers it opens in the state, he said.

In 2019, Illinois created the Data Center Investment Program, offering an exemption from state and local sales and use taxes for companies that invest at least $250 million and create 20 new operational jobs in a data center. The program also requires the data center to be carbon-neutral.

A Mangum Economics research study published in February for the Data Center Coalition — an industry trade group — and the Chicagoland Chamber of Commerce found that the incentive program generated $4.2 billion in new development in its first two years. Illinois has seen more than $4 billion in additional investment since 2022, including the CloudHQ data center, according to the study.

Meta is building a $1 billion data center, which is sprouting up on 505 acres of former farmland in DeKalb. The first phase of the five-building, 2.4 million-square-foot complex is expected to come online later this year and be completed by 2025, Meta spokesperson Melanie Roe said Thursday.

The DeKalb data center broke ground in 2020, starting with two buildings, and the plan was expanded last year. The social media giant is hiring 200 workers to operate the facility, with positions ranging from technicians and electrical engineers to culinary staff.

Meta, which has 17 data centers in the U.S., also used the 2019 Illinois sales tax exemption to develop its first project in the state, the company said.

Logistics centers: Allstate moves forward, Baxter hits the brakes

Logistics centers, another booming industry in the post-pandemic era, are also springing up to replace corporate campuses — although not without some backlash.

Dubbed “player with railroads and the nation’s freight handler” by poet Carl Sandburg more than century ago, Chicago remains a major player in the 21st century logistics world, where everything from groceries to automobiles can be ordered online and delivered to your door.

Chicago has the most transportation, distribution and logistics firms in the U.S., and Illinois ranks No. 4 among states with 20,500 companies employing more than 331,000 people, generating nearly $39 billion in annual economic output, according to Intersect Illinois.

In October, with many of its 5,400 Chicago-area employees working remotely, Allstate sold its north suburban corporate campus along the Tri-State Tollway for $232 million to Dermody Properties. The Nevada-based developer is turning the 232-acre property, which was annexed by Glenview, into a 10-building, 3.2 million-square-foot logistics park.

Allstate relocated its headquarters to a nearby office building it owns, downsizing from 2 million square feet to 50,000 square feet. Nearly one year later, the insurance giant has no plans to return to the large-scale corporate campus of old.

“We’re never going back to where we were,” said Allstate CEO Tom Wilson. “I don’t know where we’re going to end up. But it’s not going to be in a 2 million-square-foot place.”

Meanwhile, Dermody has been busy razing the enormous Allstate complex, and is completing the first of five buildings planned for phase one of its logistics campus. A 295,000-square-foot warehouse supplanting the former Allstate-owned Nielsen building near Willow Road is fully enclosed, with interior work slated for completion by year’s end.

The low-slung industrial building sits on the north end of the campus, its clean facade broken up only by loading docks, a few windows and a “space available” banner facing the tollway. The rest of the campus remains a demolition in progress, marked by a towering crane looming over the skeleton of a bombed-out high rise at the center amid mounds of rubble.

“It was just a massive campus to try to take down,” said Neal Driscoll, Midwest region partner at Dermody. “We really were hoping we could implode that tower, but it’s too close to the interstate.”

The project, which is expected to cost more than $500 million including land acquisition, will be one of the largest urban logistics developments in the U.S., bringing a projected 1,900 jobs, a new streetscape and vastly different traffic patterns than the former insurance headquarters.

Dermody is expected to announce its first logistics tenant soon, with trucks likely to begin rumbling out of the facility by the middle of next year, Driscoll said.

While Dermody is moving forward with a logistics center at the former Allstate site, just up the road in Deerfield, a similar plan to turn the 101-acre Baxter International headquarters off the Tri-State Tollway into a warehouse facility never got off the ground.

In June, Chicago-based Bridge Industrial withdrew its proposal to transform the corporate campus after neighbors campaigned to derail the project over concerns about truck traffic.

Baxter, Bridge and village officials did not respond to requests for comment.

At Intersect Illinois, Seals said each community needs to weigh the trade-offs associated with replacing a corporate campus with a logistics or data center.

While both generate tax revenue, data centers don’t bring many permanent jobs, while logistics centers may bring many trucks. But with once-busy corporate campuses verging on obsolescence, either option may be better than the alternative, Seals said.

“I don’t want to speak for those communities and what their priorities are, but I certainly understand if they’re saying new tax revenue is better than no tax revenue, and this could be a good fit for them,” Seals said. “It would be hard to bank on getting another corporate headquarter campus opportunity.”

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