Owners of COVID-19 sites that haven't opened asking the state for millions in rent

  • The owners of the former Sherman Hospital site at 901 Center St. in Elgin, an alternate care site for COVID-19 that hasn't opened yet, asked the state for $3 million in rent for the first year.

      The owners of the former Sherman Hospital site at 901 Center St. in Elgin, an alternate care site for COVID-19 that hasn't opened yet, asked the state for $3 million in rent for the first year. Brian Hill | Staff Photographer

 
 
Posted5/23/2020 5:00 AM

While former hospitals in Elgin and other towns so far go unneeded in the fight against COVID-19, the question of how much Illinois will pay to rent the facilities is playing out in eminent domain lawsuits.

The property owners have sought millions of dollars in monthly rent from the state, according to state documents and lawsuits filed after the state took over the properties.

                                                                                                                                                                                                                       
 

The facilities are the former Sherman Hospital campus in Elgin, the former Westlake Hospital in Melrose Park, the former MetroSouth Medical Center in Blue Island, and the former Vibra Hospital in Springfield.

The Illinois Emergency Management Agency used emergency powers -- which came with Gov. J.B. Pritzker's March 9 statewide disaster proclamation -- between March 30 and April 3 to take over the facilities to house COVID-19 patients, or to quarantine people exposed to the disease, documents show.

The state subsequently spent millions in federal emergency funding -- $18 million at the Elgin site alone -- for construction at the four locations, which have not had to open so far.

State officials said Friday that it's "still under review" how long the IEMA expects to keep the facilities. The eminent domain lawsuits are "a procedural requirement" so the courts can determine "just compensation" for the property owner, state officials said.

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The emergency taking orders cite state law, saying compensation shall include 6% annual interest on the fair market value of the property.

The owners of the Springfield site did not specify what compensation they wanted, while the other three did, documents show. The Daily Herald obtained copies of the emergency taking orders and the lawsuits regarding the Elgin and Blue Island sites, but not the Melrose Park site because of coronavirus-related court restrictions.

The state is represented by special assistant attorneys general, who didn't respond to requests for comment.

Elgin site

The 254,000-square-foot site on 13.7 acres at 901 Center St. in Elgin is owned by 901 Center Street Holdings, which asked the state for $3 million for the first year with rent paid in advance for six months, a $1 million security deposit and "substantial" rent increases in following years, documents show.

The company bought the property for $1.01 million last year. Daniel Olswang, agent and manager for the company, didn't return a request for comment.

A case management conference is scheduled for July 16 in Kane County Circuit Court.

Melrose Park site

The former Westlake Hospital in Melrose Park is about 400,000 square feet with about 225 beds and is owned by the bankruptcy estate of Westlake Property Holding. The bankruptcy trustee asked the state for $1.458 million in monthly rent, documents show.

                                                                                                                                                                                                                       
 

The bankruptcy trustee, Ira Bodenstein of the law firm Fox Rothschild in Chicago, declined to comment.

A status hearing is scheduled Tuesday in Cook County circuit court.

In an unusual twist, the property owner of the Elgin site is involved in a bid to acquire the Melrose Park site.

Olswang is the agent of JET Hospitals LLC, whose manager is John Everest Thomas, Olswang's partner at the Chicago real estate development company Freedom Development Group.

JET Hospitals is trying to purchase the former Westlake Hospital property at an upcoming auction and made a "stalking horse" bid of $12 million -- meaning further bids can't go below that -- Thomas said.

The idea for the investment came after seeing what was happening with the Elgin property and realizing the potential for revenue at the Melrose Park site due to the state's involvement, Thomas said.

Blue Island site

The owner of MetroSouth Hospital in Blue Island asked the state to pay $13.5 million every 10 weeks, based on the pricing of $17.78 per gross square foot. The property is 735,112 square feet with an additional 10 acres and includes 200 beds and 260 TVs, documents show.

The owner is Veterans Services LLC, whose attorney at Katten, Muchin and Rosenman in Chicago didn't respond to a request for comment.

Documents list the city of Chicago as the property's tenant. "We expect that the city will receive compensation from the state, but we cannot provide details at this time," said Kathy Fieweger, spokeswoman for Chicago's department of law.

A status hearing is scheduled Tuesday in Cook County circuit court.

What's different

Government agencies typically use eminent domain to take properties for things like road widening and tax-increment financing redevelopment, funded by property taxes. Attorney Michael W. Ryan, of Ryan & Ryan in Rosemont, who specializes in eminent domain, said this is the first time he's seen the state use emergency takings since he started practicing law in 2002.

It's common for eminent domain cases to end up in court, and for property owners and government agencies to have "very drastic differences" in the monetary value assigned to properties, Ryan said.

But the emergency takings of the hospital sites are unusual, he said.

Usually a government agency would have to appraise the property and make a formal offer, then wait 60 days to file a lawsuit while making a "good faith" attempt to agree on compensation, Ryan said.

"In this case, due to the pandemic, they had to act quickly," he said.

Also, eminent domain cases usually are specific, either seeking to purchase a property or use it for a certain number of years, like for easements during road construction, Ryan said. "Here it's unspecified and open, which makes these cases unique."

A high percentage of eminent domain lawsuits are settled before going to a jury, Ryan said.

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