A Chicago federal judge has given the green light to a lawsuit against the city of Chicago brought by a group that had sought to redevelop a skyscraper in Chicago’s Loop, saying the city must pay for allowing an alderman to change the zoning on the building after the city had issued the building permit, demolishing their plans and the building’s profitability in the process.
On March 12, U.S. District Judge Charles P. Kocoras rejected City Hall’s attempt to dismiss the lawsuit brought by Pittsfield Development LLC, fleshing out his earlier findings that the city’s zoning action could be considered an illegal property taking.
“The Downzoning Ordinance affected but a single property, was passed in direct contravention of the City’s previously issued Permit, and went into effect well after a significant portion of the Building had been demolished – all of which allegedly contributed to substantial pecuniary loss on Pittsfield’s behalf,” Judge Kocoras wrote.
The case centers on the attempt by the development group to redevelop the Pittsfield Building at 55 E. Washington Street in the Loop, steps from Chicago’s Millennium Park.
Pittsfield Building, Chicago J. Crocker [Attribution]
The Pittsfield group purchased the property in 2000, and later divided ownership of the building among four corporate entities, to operate different sections of the 40-story building differently.
In 2014, the owners asked for and received permits from the city of Chicago to redevelop the building to include residential units, as well as a hotel on the tower’s floors 2-9.
According to court documents, the city’s approval included language expressly stating “a 210-room hotel with associated hotel operations … is a permitted use” in the building’s zoning district, at the time, “… and therefore would be allowed to establish by-right.”
After obtaining the approval and the zoning letter, the Pittsfield group emptied the building of most tenants and “completely demolished floors 7-9 in anticipation of hotel construction.”
The city issued a permit to construct the hotel in December 2015.
Four months earlier, the developers had entered into an agreement with another group, identified as Adam David Partners I LLC, to buy the building for $36 million.
The deal ultimately fell through, but not before a representative of the Adam David group purportedly met with Ald. Brendan Reilly to discuss making the entire building residential, with no hotel, according to Kocoras’ decision.
“Shortly thereafter, Alderman Reilly publicly voiced his opposition to the operation of a hotel in the Building,” Kocoras wrote.
In early 2016, Reilly secured approval from the Chicago City Council of an ordinance rezoning only the Pittsfield building to restrict the building solely to certain kinds of residential units, “essentially barring construction of new units in the Tower” and prohibiting a hotel on the site.
Pittsfield said the decision effectively wiped out their ability to make any money from the building, or their proposed projects, as buyers “were uninterested in the Building because the Downzoning Ordinance restricted the property’s use.”
The Pittsfield group filed for bankruptcy in March 2017, and ultimately sold their interests in the building at auction for $20.8 million in August 2017.
The Pittsfield group then sued the city in January 2018, asserting the city’s actions violated their constitutional property rights and rights to due process.
In response, the city asserted the building permit held by the Pittsfield group didn’t create an enforceable property right that could be taken by the city.
The city also asserted the Pittsfield group should have instead petitioned for a court order – a writ of mandamus - forcing the city to honor its permit.
Judge Kocoras, however, sided with Pittsfield on those questions, saying Pittsfield’s assertion “fits squarely” within Illinois law’s interpretation of so-called “vested property rights.”
“Plaintiff has alleged that it was issued a valid permit,” Kocoras wrote. “… The Court need not question whether Pittsfield’s demolition of three whole floors anticipated some presupposed permit, because an actual permit, the Permit, was issued after both extensive demolition and the spending of hundreds of thousands of dollars on the Permit application.”
Kocoras further noted the city’s zoning decision appeared to leave Pittsfield with no viable options.
Even if the group had obtained the court order needed to complete the construction of the hotel, “reputable hotel brands and operators could not be reasonably expected to proceed with such a development given the hostile political environment,” Kocoras said.
“Pittsfield’s assertions are especially plausible because the Downzoning Ordinance was not enacted until after Alderman Reilly publicly voiced his opposition to the operation of a hotel in the Building, which curiously happened two months after the issuance of the Permit,” the judge said.
The judge said he believed the facts of the case show “Pittsfield has demonstrated that it has a constitutionally protected property right interest.”
Pittsfield has been represented in the action by attorneys Christopher R. Bargione Adrian M. Vuckovich, of the firm of Collins & Bargione, of Chicago.
The city has been represented by attorneys with its Department of Law.