Landowners are suing the city of Chicago, Illinois over a stalled proposal to build an Equinix data center.
The owners of now-vacant land at the former Sykes Center are suing developer Scott Goodman and Chicago City Mayor Lori Lightfoot’s administration, claiming the city is blocking any development other than its own, according to Crain’s Chicago Business and the Real Deal.
Located on a 6.5-acre site at 2545 South Martin Luther King Drive, the Sykes Center was a 152,000-square-foot healthcare facility that has since been demolished. The site is next to the former Michael Reese Hospital, which closed in 2008 and which the city plans to redevelop as the Bronzeville Lakefront, including a mix of commercial space, residential housing, and a data center.
According to the lawsuit. the site’s owners were set to sell the property to Equinix in 2020/2021, but 4th Ward Alderwoman Sophia King and Goodman conspired to block any sale of the property. The landowners claim this was aimed at devaluing the property so it could be acquired more cheaply and added to the planned Bronzeville Lakefront project.
Crain’s cites Cook County records which say that the venture that owns the Sykes Center site is controlled by real estate investors Michael Madura and Brett Walrod and commercial real estate brokers Steve Disse and Jeff Devine. The group bought the property in 2007 for $12.4 million and refinanced the site in 2017 with a nearly $17 million mortgage.
The site could reportedly allow for up to 1.4 million sq ft (130,050 sqm) of development.
“The City and Goodman would like to own [the] plaintiff’s property—eventually. But they do not want to buy it yet, and they do not want to pay fair market value for it. Instead, they would like to make Plaintiff’s property unmarketable until they are ready to buy it, and then to buy it at a discount,” the filing said. “The City and Goodman have conspired to scare off potential buyers of the Plaintiff’s property—including one that even signed a purchase contract.”
“They have done so by making it known to the marketplace that the City will never give the required approvals necessary to develop [the] plaintiff’s property for any use to any buyer other than itself, i.e., the City-Goodman joint venture,” the suit continued.
Equinix was reportedly in discussions with the landowners in April 2020 and agreed to buy. the land for $30 million for a data center, conditional on government approvals. In September, however, the company was reportedly told the City and Goodman ‘had plans for the site’.
By December 2020, the lawsuit alleges that the city told Equinix that it would never get the necessary approvals to operate a data center on the site, but assured the operator that it would have no problem obtaining the approval if it were to build a data center across the street on the Michael Reese property already owned by the city.
“Goodman further stated that he “needed” the site, but not for another five to 10 years. Goodman further stated that he and “his friends” would oppose any use [the] plaintiff might propose for the site, and that [the] plaintiff would never get zoning for any use of the site, purportedly because it was “not in the public’s best interest”,” the suit claims. “Goodman—no mere competitor—has engaged in tortious interference with Plaintiff’s prospective economic opportunity by wrongfully causing a purchaser of the plaintiff’s property to terminate the deal,” the suit claims.
In January 2021, King reportedly told Equinix that the City would not grant Equinix the required approvals because it wanted to purchase the site for itself “cheap” and wanted only one data center in the area—the one suggested at the Michael Reese Site.
As a result of this information, Equinix terminated its deal to acquire the former Sykes Center property and entered into negotiations to buy the land suggested by King. It's unclear what the outcome of those negotiations has been.
King reportedly then went to the plaintiffs to acquire the Sykes Center site but said the offer ‘wouldn’t be data center money’ and less than the $30 million Equinix offered – later offering around $15 million. The landowners refused King’s offer.
The plaintiffs are seeking $45 million in damages.
Founded in 1881, Michael Reese Hospital closed in 2008. The City acquired the property in 2009 and cleared most of the land shortly afterward. The site was put forward as the site of an Olympic Village for Chicago’s 2016 Olympic bid, and was also proposed as a potential site for Amazon’s second headquarters. As well as an innovation center, welcoming center, parks, and residential housing, the development includes a data center to be built in phase 2. The city commission approved the plans in February 2022, with construction due to begin in 2023.
Equinix currently operates five data centers in Chicago – CH1, 2, and 4 at the Digital Realty-owned 350 E Cermak carrier hotel, and CH3 and CH7 in Elk Grove and Westmont respectively. CH4 opened in 2009. The company owns CH3 and CH7, the latter of which was acquired from Verizon in 2017.
The Sykes Center site is just over a mile away from 350 E Cermak. The company never publicly announced plans for a new data center in Chicago and Equinix has not been named as part of the Bronzeville Lakefront project.
DCD has reached out to the City of Chicago, Equinix, and the owners of the Bronzeville Lakefront project website for comment.