In a significant blow for Sterling Bay’s struggling Lincoln Yards project, the Chicago-based real estate firm has conceded a substantial portion of its planned development site to lender Bank OZK.
The move involves transferring the northern segment of the proposed 53-acre development through a deed in lieu of foreclosure, marking a pivotal setback to Sterling Bay’s $6 billion vision involving a mix of offices, housing and retail along a stretch of the Chicago River, Crain’s reported, citing a Sterling Bay letter to investors.
The developer’s CEO Andy Gloor acknowledged in the letter that the company reached an agreement with Bank OZK, a prolific construction lender based in Arkansas, to help settle a $126 million mortgage loan Sterling Bay took out against the land. The deal likely allows the borrower to relinquish control of the property while dodging a potentially lengthy formal foreclosure court process.
The transfer comes as Sterling Bay falters with securing financing to revitalize the project, which was slated to encompass 14.5 million square feet. Gloor cited “unprecedented pressures” on real estate financing markets as the cause of the difficulty, the outlet reported.
The relinquished land encompasses a 28-acre parcel once occupied by the A. Finkl & Sons steel plant, with the change in ownership posing further uncertainties about the project’s future, size and use. Bank OZK had extended the maturity of the mortgage multiple times, and expressed its devolving outlook on the project’s viability through recent writedowns, which cut its balance to approximately $88 million by the end of 2024.
While Sterling Bay had been in talks with various prospective financial partners to inject additional cash into the project, including the Chicago Teachers’ Pension Fund and investment firm Kayne Anderson, efforts to secure a deal faltered, prompting Bank OZK’s action. The lender confirmed its intention to market the property to new sponsors.
Despite the setback, Gloor conveyed optimism about Sterling Bay’s ongoing involvement in Lincoln Yards’ future. The company had previously sought to consolidate ownership under a single entity, aiming to overcome challenges posed by the early exits of its initial backers — J.P. Morgan Asset Management and Dallas-based Lone Star Funds — as well as regulatory hurdles.
Lincoln Yards was approved by Chicago’s City Council in 2019 under former mayor Rahm Emanuel, and faced additional delays attributed to financing disputes with the preceding administration of former mayor Lori Lightfoot. Efforts to secure infrastructure funding through a proposed bond deal encountered setbacks due to rising interest rates and ultimately exacerbated tensions between the developer and city officials.
— Sam Lounsberry