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Chicago Thu Aug 06 2009
The New York Times published an article Tuesday regarding the upcoming auction of the 2.7 million square feet Post Office building that rests on top of the Congress Expressway. The auction price of $300,000 comes along with $2.5 million in annual operating expenses, even as the building sits unoccupied. However, the city has previously pledged $51 million dollars in TIF financing to assist the developer with the puzzling property. It is unclear if there will be any takers, given the condition of the downtown real estate market. As the ubiquitous John Buck states, "There's nothing developable downtown for the foreseeable future in any category. There's no retail market, no office market and no residential market." Given that rosy outlook, I'd like to propose an alternative to selling the building to a private developer; the city should buy it and lease it for free to start-up companies and small businesses.
Every year the City of Chicago spends millions of dollars either luring or retaining large companies to the downtown area in the hopes of keeping as many jobs within the city limits. These companies know they are bargaining from a position of strength because they are established and have a great deal of inertia in the business world. Start-ups and small businesses, on the other hand, have more limited options regarding access to public money. Often finding themselves trapped into rigid leases, overhead costs represent one of the largest obstacles to either growing or, as in today's economy, staying in business. Coupled with this vulnerability is the dearth of venture capital in the Midwest. Richard C. Longworth addressed this issue in his book Caught In the Middle: America's Heartland in the Age of Globalism. Despite being within two hours of three of the world's preeminent universities, Chicago loses out when, for example, computer science researchers take their earth-moving ideas to Silicon Valley to capitalize them. (YouTube and Mosaic, the first web browser, were both developed at the University of Illinois and capitalized in California) Put more simply, the Midwest pays for the research and development while other regions get the jobs and tax revenue.
Focusing more specifically, the city could negotiate for the building, particularly given the anticipated lack of competition, and reinvest the previously committed $51 million dollars into menial renovations, such as rapid turnover office systems (common on the West Coast and other areas popular with emerging businesses). Once completed, free leases would be offered to qualifying businesses; for example, companies less than 3 years old or less than 10-20 employees, etc. In return, the business would sign an agreement to maintain a certain percentage of their staff or headquarters within city limits for a length of time, thus bolstering the future office market. Even if only 5% of the businesses succeed and grow, the benefit to job creation and annual tax revenue would far outweigh operating costs.
Recessions are great periods of entrepreneurial experimentation. During the recession of the 1980's, a record number of IPO's came to market. If Chicago can incubate new businesses and anchor them into the city, it stands to reap the benefits of their ascension. On the other hand, the building could just sit vacant for another decade or two.