The Deal at 30: 'Everyone kept waiting for something to happen in Prairie Stone'

  • Thirty years after the tax deal that brought Sears headquarters to Hoffman Estates, the development that had been expected to spring up around it has been slow.

    Thirty years after the tax deal that brought Sears headquarters to Hoffman Estates, the development that had been expected to spring up around it has been slow.

 
 
Updated 5/19/2020 5:46 AM

This article was produced in partnership with the ProPublica Local Reporting Network. ProPublica is a Pulitzer Prize-winning nonprofit newsroom that investigates abuses of power.

In the mid-2000s, Sears, the village of Hoffman Estates and a private developer decided to go into show business together.

                                                                                                                                                                                                                       
 

They agreed to build the Sears Centre, an 11,000-seat entertainment venue that was expected to draw hundreds of thousands of people a year from across the region to watch top music acts and sports teams. The village would finance the project with $55 million in bonds. The center would generate the revenue to pay off the notes.

Hoffman Estates Mayor William McLeod reassured taxpayers that the arena would pay for itself -- and bring in an additional $1 million a year in tax revenues.

"We're very confident that the arena will be successful," he said in 2004.

When the glittering arena opened in October 2006, the debut acts were Duran Duran, Bob Dylan and Lionel Richie. A number of minor league sports teams have called it home, most recently the Chicago Bulls developmental league team. The arena has built a niche for itself with truck pulls, bull riding, wrestling and mixed martial arts. Local high schools celebrate graduations there and community groups hold book fairs and other events.

Still, the venue has struggled to fulfill its promise. Since opening, it has never posted a profitable year. When the private developers, Minnesota-based Ryan Companies US, threatened to walk away from the money-losing venture, village officials took over the center in 2009.

by signing up you agree to our terms of service
                                                                                                                                                                                                                       
 

Today, the Sears Centre is a demonstration of the risk of entangling private corporate interests and public tax dollars.

Hoffman Estates taxpayers are now on the hook to pay off the bond, which will cost $108 million over the full term of the note.

Government subsidies for cultural and entertainment venues are not unusual in the suburbs. But Hoffman Estates' support for the Sears Centre stands out. A private project that was not supposed to cost taxpayers anything instead accounts for 14% of the town's $107 million annual expenses in 2018, the last year for which figures are available. The operating loss -- how much the arena's expenses exceeded its revenues -- was $1.5 million.

Over the past decade, Hoffman Estates has used nearly $14 million from the general fund and other village accounts to help cover the arena's losses.

McLeod blamed poor management and a recessionary economy for the arena's financial picture -- now further clouded by the coronavirus pandemic, which may prevent large crowds from gathering in the near future.

                                                                                                                                                                                                                       
 

"I think it is working out successfully," McLeod said. "We got a good general manager there. We've got the Windy City Bulls."

McLeod, who voted for the original deal that brought Sears to Hoffman Estates as a village trustee in 1989, acknowledges that development in the special taxing district as a whole has not lived up to all the promises made three decades ago. But he said Sears Centre brought entertainment and income to the suburb. Village officials said taxes from nearby businesses lured by the presence of the arena cover its annual losses.

"It's a great amenity with the community and the surrounding area," McLeod said. "We have a hospital that doesn't pay taxes, but it's a great amenity for our people. Not everything is for profit."

The path to the construction of Sears Centre began in 1989, when Sears, then Illinois' largest private employer, threatened to move its headquarters from the famous Sears Tower in downtown Chicago to another state.

To keep Sears from departing, Illinois politicians awarded the company hundreds of millions of dollars' worth of tax incentives to build its headquarters and a business park in Hoffman Estates.

The business park, called Prairie Stone, would feature office buildings to hold a plethora of Sears' vendors and suppliers that would, it was assumed, want to be near the retailer, as well as other big companies that would follow Sears to the village.

A second wave of hotels, restaurants and other stores and service shops, which Sears and village leaders likened to a town center, would turn the former farmland into an economic mecca.

All told, Sears headquarters and Prairie Stone would create 30,000 to 45,000 jobs, including Sears' workforce, or so it was thought. Hoffman Estates would grow larger and wealthier, its population expanding, its housing market heating up and its tax coffers overflowing.

But Prairie Stone showed problems from the start. Months after Sears completed its corporate headquarters, the company built the first pair of office buildings. The company halted work on two other planned buildings in September 1992. The reason? "Low demand," according to a Sears spokesman at the time.

Over the years, Prairie Stone struggled to attract businesses, hampered by false starts and stalled projects. Frustrated by the slow pace of development, Sears churned through three commercial real estate developers hired to market Prairie Stone in less than a year.

"Everyone kept waiting for something to happen in Prairie Stone," said Ron Culp, a former vice president of public relations and government affairs at Sears. "I don't think the buy-in was as big as [Sears] might have anticipated with the big brands putting operations out there."

Peter Burchard, who was village manager when Sears came to Hoffman Estates, said Sears charged too much for land and rent. And the company overestimated demand for office space.

"We were asking: 'So what's up? Where's the development?'" Burchard recalled. "And not much was happening. It was pretty quiet."

Transformco, a holding company run by Eddie Lampert that now owns Sears, declined to comment. Ryan Companies US officials declined to comment.

Prairie Stone's struggles hit Sears and local agencies hard.

Since development was slow, the property value of the district did not produce enough in taxes to pay off the bonds that Hoffman Estates issued to finance the Sears project. Under the terms of the agreement, Sears had to make up any shortfalls. Between 1999 and 2007, Sears paid nearly $83 million to cover deficits.

The jobs never materialized, either. Depending on who was doing the counting, Prairie Stone generated somewhere between 4,300 and 11,000 jobs by 2016 -- less than a quarter of what was projected. Nor did tax revenue growth live up to expectations. Projections called for the district to generate an additional $626 million in property tax revenues by 2012, but it only generated about half that amount in inflation-adjusted dollars.

And parts of the area remain vacant. Of the nearly 800 acres in the special taxing district, 184 are undeveloped.

The village was saved from having to use taxpayer funds to cover deficits. But local officials did not receive nearly the revenue they were expecting. Projections called for government agencies to receive a combined $175 million in tax revenues by 2012. Yet, over the first 20 years of the deal, local taxing bodies collected only $50 million, less than a third of what was originally forecast.

Hoffman Estates had long wanted to boost its profile and bring in additional tax revenue.

Neighboring Schaumburg was thriving as the region's premiere commercial and shopping destination. Rosemont, about 20 miles east on I-90 adjacent to O'Hare International Airport, had made big bets on an indoor stadium, a concert hall and a convention center, and it was paying off with new hotels, restaurants and an influx of visitors.

In 1998, the village made efforts to attract the Chicago Bears and, in 2003, it tried to lure the Chicago Fire professional soccer franchise. Both attempts failed.

Then, in 2004, an opportunity arose after voters in nearby Prospect Heights defeated a proposed entertainment arena.

Hoffman Estates saw a chance to replace Poplar Creek -- the beloved outdoor music venue that closed in 1994 after Sears demolished it for the development of the Prairie Stone business park.

Sears and village officials decided that a new sports and entertainment arena could anchor an entertainment district within Prairie Stone that would deliver the shot of adrenaline the special tax district needed.

To build it, Hoffman Estates agreed to issue $55 million in bonds. Sears donated 35 acres, took a 25% ownership stake and purchased the naming rights. Ryan Companies, the Minnesota developer that controlled the remaining 75%, would build and run the entertainment center.

Besides civic pride, another underlying rationale of the arena was to increase revenues in the special tax district, which had not delivered the returns that Sears needed to pay off the money it had spent to build its headquarters, village roads and other infrastructure.

James Terrell, a vice president in charge of Sears' real estate holdings at the time, and village officials pushed for the new arena, according to a summary of a deposition in a lawsuit between local Community Unit District 300 and Sears over revenue from the deal.

The arena "would energize" the Sears' development, according to court documents summarizing Terrell's viewpoint.

Michael Rossiaky, a trustee on the village's park district board and a longtime Hoffman Estates resident, was part of a group of locals that wanted to stop the arena development in 2005.

Rossiaky warned village leaders that an arena was a bad idea because unlike the Prairie Stone development, where Sears agreed to pay off any shortfalls in revenue flow, the village would be responsible for repaying the bonds if the Sears Centre failed.

"They were closed off to what anyone said," Rossiaky said. "They didn't care. They just wanted to bulldoze it through."

McLeod and other proponents of the project argued that the Sears Centre would be the linchpin to creating an entertainment district called "Poplar Creek at 59-90," after the old concert venue by Route 59 and the I-90 tollway. It would be a tourist destination that would include restaurants and a hotel and water park.

The new arena "will put Hoffman Estates back on the map," McLeod said in 2005. "This would be another feather in our cap."

After just four years of poor attendance and losses, the developers -- blaming a bad economy -- threatened to let the arena go into default. Instead, the village took it over in December 2009.

"Our biggest worry was that they would go belly up and they would stick Hoffman Estates with the bill," Rossiaky said. "And that's what's happened."

Over the past decade, the village has moved nearly $14 million from its general fund and other accounts to make up for the arena's losses, with amounts varying from a low of $150,000 in 2016 to a high of $3 million in 2009.

Last year, the Sears Centre hosted 89 events -- far from initial estimates that projected 140 shows and games a year.

Village taxpayers now pay to keep the arena in business. Between 2014 and 2018, the most recent year available, the arena brought in an average of $10.7 million annually in operating revenue, while costing $12.4 million per year to run, according to village figures. Each year, the village must use general funds to cover an average deficit of nearly $2 million.

In addition, the village must pay for upkeep and improvements at the arena -- costs that, before the outbreak of the coronavirus, were projected to reach $2 million over the next seven years.

Since the village owns the venue, it no longer collects the more than $1 million a year in property taxes that the stadium used to generate.

McLeod blamed the center's shortcomings on an inexperienced developer, poor marketing and a bad economy.

"I think part of the plan when it was put in was, 'We're going to have many more venues around it, restaurants and all that stuff.' And then the recession hit," McLeod said.

McLeod has not given up on Prairie Stone. In recent years, a Main Event family entertainment center and a Duluth Trading Company retail store have opened, but only after the village added additional tax breaks to lure the businesses to the site: $750,000 in entertainment tax rebates for Main Event and $225,000 in sales tax rebates for Duluth Trading.

Cabela's opened a hunting and fishing superstore in Prairie Stone in 2007. To snag the outlet, Hoffman Estates agreed to provide $18 million in tax rebates to the $2 billion-a-year company.

It also agreed to exempt from property taxes the store's elaborate taxidermy dioramas and aquarium displays. Those include "Conservation Mountain," a two-story fiberglass mountain with artificial trees, a waterfall and stuffed animals such as deer, bears and waterfowl that occupies about 15% of the store's 185,000 square feet.

Cabela's estimated that the tax exemption would allow it to save $5.5 million in property taxes over 20 years, about $275,000 a year.

The logic? Under the agreement, the displays belong to the village. And they have a special designation. Cabela's displays are now Hoffman Estates' only publicly owned museum.

McLeod said the Cabela's deal was worth it.

"I'm not particularly a big fan of this sort of stuff," McLeod said. "But it's the cost of doing business these days."

0 Comments
                                                                                                                                                                                                                       
 
Article Comments ()
Guidelines: Keep it civil and on topic; no profanity, vulgarity, slurs or personal attacks. People who harass others or joke about tragedies will be blocked. If a comment violates these standards or our terms of service, click the X in the upper right corner of the comment box. To find our more, read our FAQ.