(Bloomberg) -- Chicago Mayor Brandon Johnson is proceeding with a revamp of empty downtown buildings initially estimated at $1 billion in an effort to counter a commercial real estate crisis that’s cut sale prices by more than 50%. 

The city, run by a progressive Democrat who’s been in power for less than a year, has been working with developers to refine plans to repurpose buildings along and near LaSalle Street, once known as the Wall Street of Chicago, according to the city’s Chief Financial Officer Jill Jaworski. An announcement is expected by the summer after high interest rates delayed the project, she said.

Chicago, like many other cities in the US, has been struggling to fill empty offices after the pandemic hollowed out downtowns. Johnson’s move to keep an initiative kick-started by his predecessor Lori Lightfoot will help combat vacancy rates in the city’s central business district, which climbed to a record in the fourth quarter, according to real estate brokerage Jones Lang LaSalle.

“It’s taken a little bit longer to get things going but we are working closely with those projects and doing what we can to move them forward,” Jaworski said in an interview on Friday. “We expect that we will see projects get announced and get off the ground in the near future.”

Lightfoot, the first Chicago mayor to lose a reelection bid since 1983, first announced plans to repurpose almost 2.3 million square feet of vacant space — the equivalent of almost 40 football fields — in September 2022. The future of the so-called LaSalle Street Reimagined initiative had been in question since Johnson took over in May. 

The mayor has been trying to appease the business community after a rocky start fueled by a series of plans to tax the rich. Just last week he announced plans to boost the Loop, as Chicago’s central business district is known, that include a Chicago Board of Trade museum. He also gave more than $1 million in grants to six downtown restaurants including the storied Ceres Cafe, where dealers used to flock in the heydays of the city’s trading floors.

Downtown Revamp

“The mayor is committed to rejuvenating and encouraging the development of housing in the LaSalle Street corridor,” Quintin Primo III, founder of Capri Investment Group, said in an interview last month. His company proposed to redevelop 111 West Monroe Street with housing and a hotel as part of the initiative. 

Before Lightfoot left office, the city had picked proposals from a group of developers to convert five buildings along LaSalle, Adams and Monroe streets. Jaworski declined to comment on whether all five projects will move forward. 

High interest rates have hurt the property market across the country. In Chicago, fewer than five large office buildings sold last year, with deals struck at losses ranging from 50% to 90%, according to the Building Owners and Managers Association of Chicago. LaSalle Street Reimagined projects weren’t immune. 

“The borrowing environment has changed a lot since they made those proposals and it’s a challenge right now for all real estate developers,” Jaworski said. 

It’s not all bad news for Chicago. Distressed buildings have finally started to change hands and the transformation of the iconic Thompson Center — which takes up a whole city block — into Google’s new office is set to start soon.

Scott Henry, chief executive officer of Celadon Partners, a Chicago-based affordable housing developer selected to renovate 105 West Adams Street, said he has been advised to “keep pressing forward” and “be ready to go.” The LaSalle Street Reimagined project initially included more than 600 affordable homes. 

Vibrant Place

Prime Group, which had proposed renovations of two buildings, is advancing its projects, said founder Michael Reschke. Final drawings for permits are about to start and the firm has “adjusted capital requirements to provide for slightly higher construction costs and higher interest rates,” he said.

Jaworski said plans to revitalize downtown can’t solely rest on traditional office space even if companies are amping up pressure for workers to return. Chicago also wants to draw people to its Loop theaters, restaurants and other amenities, she said. 

“We are very supportive of plans to transition some office buildings into residential to provide affordable housing,” Jaworski said. “We obviously want the downtown of Chicago to continue to be a vibrant place.”

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