The Deal at 30: Sears squandered an opportunity, ex-village manager says
For Sears, a chance to escape the Tower. For Hoffman, a chance to put itself on the map.
In the years after Phoenix homebuilders Sam Hoffman and his son, Jack, bought a 160-acre farm 30 miles northwest of Chicago in 1954 and split up the land into a neat subdivision of half-acre lots, the village that would come to bear the family's surname grew at a steady clip.
Sprawl came remarkably fast to Hoffman Estates, as returning veterans and city ex-pats scooped up the modestly priced homes in the tract developments that were taking over the suburban landscape. In 1960, a year after the village was incorporated, more than 8,000 people called Hoffman Estates home.
Village leaders were quick to catch on to Chicago-style pay-to-play politics. In 1973, two former mayors, Roy L. Jenkins and Edward F. Pinger, along with four trustees on the village board, went to prison for accepting bribes in exchange for favorable zoning.
Emerging from those scandals in the mid-1970s, Hoffman Estates was a town with an identity crisis. Spanning five townships and crossing two counties, the village had no traditional "Main Street" downtown, and its students were spread across six school districts. It was less of a cohesive village than an amalgamation of subdivisions dotted with shopping plazas.
While the village had become a flourishing, if sleepy, bedroom community, its fast growth came with a price: More people meant higher costs for more municipal services like schools, parks and police.
The village lacked much of a commercial tax base to help pay the bills. Officials wanted to attract more business not only to keep residential tax rates down but to bring more jobs for locals.
They looked with envy at Schaumburg, their rapidly expanding neighbor to the east, as it cemented itself as the economic powerhouse of the Northwest suburbs. It had the Woodfield Shopping Center, the area's destination shopping mall, along with retail stores and restaurants. It filled up with office buildings, including the headquarters of Motorola, which arrived in 1976.
Schaumburg was so flush with commercial tax cash that its residents didn't even pay local property taxes until 2009.
Hoffman Estates had one thing Schaumburg didn't: thousands of undeveloped acres of land. One site contained nearly 800 acres of rolling farmland between Beverly Road and Route 59, just off the Northwest Tollway.
It was just what Sears wanted.
CEO Edward Brennan was looking in 1989 to leave Sears Tower, which dominated Chicago's skyline as a none-too-subtle reminder of the company's reach and riches. He was looking for a less expensive headquarters in a sprawling suburban campus. The land had to be cheap and shovel-ready. The location needed to be next to an interstate, with an easily accessible interchange, and close to an airport.
Gov. James R. Thompson's administration identified Hoffman Estates as a probable site.
The details of the deal, worth $261 million in 1989, are complex.
In exchange for agreeing to move its headquarters to Hoffman Estates, the company received a state promise to spend more than $61 million -- a sum that later grew to $80 million -- for infrastructure improvements. The state built two new tollway interchanges to connect the Sears headquarters to Interstate 90 and handle the thousands of vehicles that would be going in and out of the complex each day.
The company was also given the 800 acres along the tollway paid for by $181 million in bonds issued by Hoffman Estates and funded by increased property tax revenues in the district.
The company used 200 acres for its new campus-like headquarters -- more than 2 million square feet of office space in low-slung buildings with blue-mirrored glass, designed to hold 5,000 to 6,000 employees.
More than half the size of the Pentagon, the complex was a self-contained world. There was a main concourse with a coffee shop, hair salon, drugstore, travel agency and sundry shop.
There was a 1,000-seat auditorium, a fitness center, and a huge cafeteria and fast-food dining that rivaled the big food courts found in shopping malls.
Surrounding the headquarters was a tranquil, natural setting of reconstructed prairie, indigenous plants, wildflowers, wetlands and lake-like retention ponds.
"It was a beautiful facility," recalled Ron Culp, Sears' former vice president of public relations. "But you felt like you were being held captive in a kind of remote location."
Under the deal, Sears planned to develop the remainder -- nearly 600 acres -- for itself. Plans called for a business park, with additional office buildings, hotels, restaurants and shops, which officials likened to a town center.
To pay for the new development, state and local officials established two special tax districts drawn around the company's new corporate headquarters.
One district designated the land around Sears as a state enterprise zone, which provided millions of dollars in tax breaks on sales, construction materials and the cost of utilities.
The second was called an Economic Development Area, or EDA. Property taxes within the district were frozen from 1989 through 2012, when the agreement expired. Additional tax revenue -- raised by the growth of property values in the area during that 23-year period -- was funneled into projects designed to mutually benefit Sears and Hoffman Estates.
For instance, Sears paid to offset additional village expenses associated with Sears' move, including hiring more police officers and firefighters and building a new water tower. The revenue raised in the special tax district was used to reimburse the company.
Similar districts, often called tax increment financing districts or TIFs, are frequently used to improve blighted urban areas. But Hoffman Estates was a comfortable, middle-class suburb. So Thompson spearheaded a special law that allowed the financing mechanism to be used for Sears.
The majority of the revenue raised went to Sears. The rest was distributed to more than a dozen other local taxing bodies within the economic development area. Hoffman Estates alone was guaranteed $57 million through 2012.
When the EDA district expired in 2012, the thinking was, Sears would have recouped all of its costs. The local government agencies -- after functioning for more than two decades without increased property tax revenue -- would suddenly see a flood of new money with the lifting of the tax caps.
But by the time 2012 rolled around, Sears was in serious trouble. Over the decades, the company had lost ground to other retail competitors such as Amazon and Home Depot. The company had fired tens of thousands of employees and shuttered retail stores across America.
With billionaire hedge fund manager Eddie Lampert as its majority shareholder, Sears approached the state with a new, if familiar, threat: Without an extension of the deal, the company would leave. Despite the company's dismal outlook, state and local officials agreed to Sears' demands.
They approved a 15-year extension of the EDA worth an estimated $125 million. The state's economic development agency also kicked in another $150 million in payroll tax credits through the state's flagship jobs initiative, Economic Development for a Growing Economy, or EDGE.
The new deal required Sears to retain 4,250 employees.
Experts acknowledge that it may appear ill-conceived for Illinois and local governments to award hundreds of millions of dollars in tax breaks and incentives to a financially troubled company.
But back in the early days, it was all too easy to ignore the warning signs.
Three days after Thompson and Brennan announced the original deal, Sears laid off 400 managerial employees. By the time Sears opened its new headquarters at Hoffman Estates in the summer of 1992, the company had shed a reported 1,600 office jobs at the headquarters and had eliminated more than 43,000 jobs across its empire.
The losses did nothing to dim the enthusiasm. Illinois was keeping Sears. Hoffman Estates was vaulting onto the map.
All of it seemed to come at no cost -- free roads and free services.
Peter Burchard was the 34-year-old village manager of Hoffman Estates when the deal was signed. He counted himself as one of the true believers in its promise to turn the city, the entire region, into an economic powerhouse.
Today, Burchard says Sears squandered a half-billion-dollar opportunity. The company, he said, charged too much for leases and office space, impeding development.
"They put a premium on everything, because it was Sears," Burchard said. "It was kind of arrogance."
But in the beginning?
"The potential was just enormous," said Burchard, now 64. "Dreams! Potential! Possibilities!"
Deal: Sears squandered an opportunity, ex-village manager says