The FBI is paying about $280 million in rent and operating expenses over 14 years for its 10-story West Side office – more than double what it cost to build the complex.
Moreover, politically connected developers made big money on the deal – as much as $45 million in profits, according to records and interviews. Among those to benefit were Penny Pritzker, a top campaign fundraiser for President Barack Obama who later appointed her U.S. Commerce secretary, and developer Jack Higgins, a friend and political backer of former Chicago Mayor Richard M. Daley.
Developer Jack Higgins and his wife Marti Higgins with then-Mayor Richard M. Daley at a fund-raising benefit in 2005. / Sun-Times file photo
But taxpayers didn’t fare as well, according to the Government Accountability Office, the investigative arm of Congress, which singled out the project as a prime example of wasteful spending across the country.
The GAO found that the feds could have saved more than $40 million over 30 years had taxpayers built and owned Chicago’s FBI complex, which now carries the federal government’s largest lease in the area.
In coming up with a figure of $40 million in waste, the GAO factored in inflation and expenses. The rent payments cover expenses such as property taxes, cleaning and maintenance.
“In most cases, it makes little sense for government to lease capital equipment or buildings,” said banker and former U.S. Sen. Peter Fitzgerald, a Republican who represented Illinois at the time of the FBI lease and added he wasn’t consulted about the contract.
And yet, the feds have done it for years, opting for less spending in the short run even though in the long term they’re paying big.
Ironically both Higgins, in charge of constructing the FBI building, and the extended Pritzker family, which helped provide financing for it, have also gotten in serious trouble with the federal government over unrelated financial issues and have been forced to pay millions to settle those disputes.
Chicago FBI office / www.fbi.gov
Despite the political players involved, there’s no evidence that clout tilted the playing field, although records indicate the Higgins group did not have the lowest bid when the contract was awarded. The federal agency that oversaw the project, the U.S. General Services Administration, or GSA, would say little about how or why it selected the FBI office developers.
In an interview, Higgins said politics played no role in the contract and he is skeptical that federal ownership of real estate would save money. The government “would not be able to build that building cheaper than the private sector was able to do,” Higgins said.
Pritzker declined to be interviewed but a spokeswoman for her real estate company said the bidding process was open and competitive.
According to public records, the project had its roots in the 9/11 terrorist attacks, after which the FBI went on a multi-million-dollar spending spree to build high-security field offices for its agents outside of Washington, D.C.
Private contractors were hired to design, build and lease dozens of campus-like complexes with energy-efficient, architecturally appealing office buildings and parking structures.
As is typical, the Chicago site at 2111 W. Roosevelt was designed with security in mind: Two and a half miles from downtown, isolated on 10.8 acres, surrounded by green space and fenced off from the public.
The project consolidated five local FBI offices under one roof, with double the previous space. The move from drab, cramped offices to a more efficient and secure building boosted employee morale, according to an FBI supervisor.
At $20.1 million a year, it’s the most expensive federal lease in Chicago, and the largest stand-alone leased field office in the country, according to government records. The initial lease was for 14 years, but there are options to extend it beyond that.
In 2003, the GSA, manager of the build-to-lease project, awarded the contract to Higgins Development Partners LLC even though records show Hines Chicago Investments LLC had submitted the low bid (though officials would not divulge the exact amount.)
Hines filed a protest with the government but lost. The company would not comment when contacted by a reporter.
The GSA justified its decision on design and technical factors and was allowed to consider price as “significantly less important.”
Higgins called the bid review “a very rigorous checks and balances process.”
Floyd D. Anderson, a partner in the architectural firm Lohan Anderson, designer of the FBI building, said in an interview that the government looks for “best value” with design features that make the building easier to maintain.
“There is more to design than how it looks,” he said, citing his firm’s durable interior finishes for walls and floors as examples.
“I think our design was basically a better mousetrap.”
Higgins denied that his connection to Daley played any role in winning the Chicago contract.
From his experience building federal projects around the country, Higgins said “there just isn’t politics involved in these things,” and that “in my opinion, if you try and pollute the process with that type of interference” with the GSA, it would work to the builder’s disadvantage.
Higgins supplied references to the GSA to qualify for the contract, but said they were business references, not political or personal.
“Not your godmother. Not your Uncle Charlie. Real references.”
Higgins said the business references included clients such as Internet player Yahoo and advertising agency Foote Cone & Belding.
Higgins was joined in a venture called FBI Chicago Partners, L.L.C. with USAA Real Estate Company, a Texas firm, and the business interests of the extended billionaire Pritzker family. At the time, Penny Pritzker was head of the Pritzker Realty Group, which oversaw much of the family real estate portfolio, including the FBI building.
The Pritzker and Texas partners were the financiers, providing capital for construction and development costs. Higgins was in charge of contract negotiations and construction.
The project cost $125 million to build, according to records and interviews. In 2009, three years after completion, the developers sold their interests for $170 million to an affiliate of the Texas partner, generating as much as $45 million in profit, records indicate. Higgins said the profits weren’t that high, adding that extra costs cut into the profit margins. But he said he was unable to provide details.
Commerce Secretary Penny Pritzker / www.commerce.gov
The Pritzker and Texas groups, reached for comment, declined to detail the transaction or explain how profits were split, citing a confidentiality agreement among the three partners.
Ironically, while profiting from the federal construction-lease project, the Pritzker family was also untangling itself from the 2001 collapse of Hinsdale-based Superior Bank under the weight of subprime mortgage losses. The family had co-owned the bank; Penny Pritzker once served as its chairman.
The FDIC covered most depositor losses. Later the Pritzkers worked out a deal to reimburse the deposit insurance fund $456 million, a deal that still left the federal agency $285 million in the hole.
Higgins has unpaid federal debts. The IRS filed liens for nearly $2.8 million in unpaid personal income taxes starting with the 2005 tax year and including $771,721 in taxes owed for 2009, the year he sold his interest in the FBI building.
Higgins said he is currently paying the back taxes, having worked out a repayment plan with the IRS.
Asked whether he owed taxes on his profits from the FBI building sale, he said that profits and losses from his business projects are “intertwined” on his tax return and that “one doesn’t have anything specifically to do with another.”
The Chicago partners in the FBI project, Pritzker and Higgins, are both major donors to local and federal Democratic campaigns.
The FBI’s Chicago offices, 2111 W. Roosevelt Rd.
Photos courtesy of Michael Schmidt/Sun-Times
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Pritzker, an heir to a fortune founded on Hyatt hotels and manufacturing concerns, served as President Barack Obama’s national finance chairwoman during his 2008 presidential campaign, heading fundraising efforts that brought in nearly $750 million. She’s donated $533,000 to federal candidates and groups, and $160,123 to local politicians since 2001, public records show.
Obama appointed her U.S. Commerce secretary in 2013.
Higgins donated $35,500 to federal candidates and he and his company gave more than $202,000 to local candidates since 2001.
Higgins and his firm gave $44,500 to his friend Mayor Daley from 2001 through 2007 including $5,500 in 2003 when Higgins was under consideration for the GSA bid.
Between 2001 through 2007, he also gave $4,500 to then-Ald. Madeline Haithcock (2nd), whose ward included the FBI site and $30,000 to then-Cook County Assessor Jim Houlihan.
Haithcock, now retired, said the FBI project was federal, not local, and the donations “had nothing to do with the FBI building.”
Daley did not return phone messages.
Houlihan said Higgins is a long-time friend, and his donations were unrelated to the FBI development.
Since 1995, the GAO has criticized the practice of moving federal agencies into leased space.
Leases are a work-around to obstacles created by Congress to rein in deficit spending. In 1990, legislation forced agencies to declare the entire cost of multi-year construction projects in their budgets for the first year of the project.
As a result, it became difficult to get the money for high-dollar construction projects approved unlike lower one-year lease payments which passed more easily.
But by 2013, according to the GAO, instead of reining in spending, the government had squandered at least $1 billion on long-term leases across the nation.
The GSA, which manages most federal buildings, now leases more space than it owns, though in Chicago, it owns 5.4 million square feet of space and leases 1.9 million square feet.
Recognizing the high costs of federal real estate practices, the White House has ordered agencies to “Freeze the Footprint” at its 2012 level by selling unneeded property it owns, and shrinking or consolidating office space it rents.
“As a result,” said Cat Langel, spokesman for the GSA region headquartered in Chicago, “we are signing leases with smaller square footage.”
This story was written and reported by the Better Government Association’s Chuck Neubauer and Sandy Bergo. The BGA’s Patrick Rehkamp contributed to this report. They can be reached at email@example.com or firstname.lastname@example.org, or at (312) 427-8330.
Image credit: Federal Bureau of Investigation Chicago Division, Flickr user Seth Anderson (CC BY-SA 2.0); Chicago FBI office, www.fbi.gov; Developer Jack Higgins and his wife Marti Higgins with then-Mayor Richard M. Daley at a fund-raising benefit in 2005, Sun-Times file photo; Penny Pritzker, www.commerce.gov.