Google moving into Chicago’s downtown Thompson Center

Nearly two decades after the state first considered a sale of the James R. Thompson Center, Google’s agreement to buy the iconic but controversial Loop building marks a key victory for both the central business district and for Gov. J.B Pritzker.

As he campaigns for reelection, the first-term Democrat has faced criticism over the state’s business climate and recent high-profile corporate departures. On Wednesday he was able to boast of a deal he called “a massive win for the city of Chicago and for Illinois taxpayers,” with his administration estimating the state will save nearly $1 billion over 30 years by consolidating office space and lowering operating costs.

“We’re saving taxpayers money. We’re growing high-paying jobs. We’re adding vitality to the Loop and improving the work environment for thousands of private- and public-sector employees,” Pritzker said. “Let the word go out that Chicago and Illinois are open for business.”

Under the agreement announced Wednesday morning at a news conference in the soaring atrium of the Helmut Jahn-designed Thompson Center, the state will be paid $30 million in cash and get the title to the former BMO Harris Bank headquarters at 115 S. LaSalle St., valued at $75 million, which will become a state office building.

The state’s deal with JRTC Holdings, a group led by developer Michael Reschke, is expected to close by Thursday, and Google has a “build-to-suit agreement” with JRTC Holdings to buy the Thompson Center once renovations are complete.

It is a significantly altered version of a previously announced agreement to sell the Thompson Center to Reschke’s group for a $70 million upfront cash payment. That deal called for the state to buy back about a third of the renovated 1.2 million-square-foot building for more than double that amount.

The vote of confidence from Google, whose parent company Alphabet ranks No. 8 on the Fortune 500, follows recent decisions by Boeing, Caterpillar and Citadel to relocate their headquarters out of state. Pritzker has pushed back on criticism about those departures, pointing to other companies that have relocated to Chicago and Illinois, including the decision by Kellogg last month to open the headquarters of its new snacks business in Chicago as it splits into three separate companies.

The expansion of Google’s Chicago operation, which has grown over the past two decades from a two-person office in River North to a two-building campus in the bustling Fulton Market district, shows the company’s “commitment to the promise and the greatness of Chicago,” the governor said.

“If it wasn’t evident before, then surely it is crystal clear now: Google is one of Chicago’s most important companies,” said Pritzker, who state economic interest disclosures show is an Alphabet shareholder. “You are an integral part of our community, and you have invested in your future while investing in ours.”

Mayor Lori Lightfoot, who’s up for reelection next year and also has faced criticism for the departures of Boeing and Citadel, said Google’s decision “represents the single largest company announcement in the last 10 years for our city and one of the largest economic opportunity development opportunities in decades.”

The move into the heart of Chicago’s downtown is part of a nationwide push by Google to increase its workforce and get employees back to the office. Part of that push is to make sure workers have the best, most enticing facilities, and the company plans to invest about $9.5 billion in its U.S. offices and data centers this year, according to an April blog post by Sundar Pichai, CEO of Google and Alphabet.

“It might seem counterintuitive to step up our investment in physical offices even as we embrace more flexibility in how we work,” Pichai wrote. “Yet we believe it’s more important than ever to invest in our campuses and that doing so will make for better products, a greater quality of life for our employees, and stronger communities.”

Karen Sauder, Google’s top executive in Chicago, wrote in a blog post Wednesday that the company anticipates moving into the Thompson Center in 2026. Reschke previously estimated overhauling the 17-story glass-and-steel structure would take about two years and cost roughly $280 million.

The parties didn’t disclose how much Google will pay for the renovated space.

Sauder said the company looks forward to working with the developer “to thoughtfully update this building to our high sustainability standards while respecting its iconic design.”

Jahn, the namesake firm of the building’s designer, will be the architect for the redevelopment.

“The original design of the James R. Thompson Center was centered on the transparency of government, and now it will showcase the openness of technology, which in many ways is representative of its initial concept as a building designed for the 21st century,” CEO Evan Jahn said in a statement.

Part of the draw for Google was the busy CTA station connected to the building, which will remain in operation throughout the renovation.

But “the way we see it, the Thompson Center is more than just a building,” Sauder said. “Establishing a presence here in the Loop allows us to get in on the ground floor of revitalizing and breathing new life into the very heart of the city. Just as we’re proud of the role we played in turning Fulton Market into one of the most vibrant and energetic neighborhoods in the city, we have the opportunity to do it all over again here.”

Google plans to maintain a presence in Fulton Market, where it currently has more than 1,800 workers, she said. The company wouldn’t say how many jobs will be located at the Thompson Center or whether it would become the Midwest headquarters.

However many workers eventually land there, the LaSalle Street corridor could use the jolt of energy the company would bring.

Vacant storefronts popped up throughout the pandemic, and this year’s loss of major office tenants such as BMO Harris and law firm Chapman & Cutler, which left for new digs in the West Loop’s BMO Tower, further shrank retailers’ customer base.

But with Google’s workers hitting the streets for lunch and shopping, new retail businesses will sense opportunity, said Michael Edwards, CEO of Chicago Loop Alliance, an advocacy group.

“Once that happens, LaSalle Street is coming back,” he said. “That’s a no-brainer.”

The move by Google is certain “to create more buzz and excitement,” said Paul Giannopulos, senior managing director at commercial real estate firm JLL. “We know the Thompson Center is not going to be an inexpensive endeavor, as there is a lot of deferred maintenance, and a lot of costs associated with making that into a flagship office, but if anyone can make that investment, and make it cool, it’s Google.”

The tech giant is credited with helping kick off the Fulton Market boom — which transformed the former meatpacking district into a glossy office center and high-end residential neighborhood — in 2015 when it placed its Midwest headquarters at 1KFulton, a former cold storage warehouse.

Something similar could happen in the central Loop, Giannopulos said. The Thompson Center includes a massive public plaza, which could provide downtown workers and visitors with a new gathering and event space or other amenities if Google commits to transforming it.

“There is a lot of land there, so much walkable space, that right now doesn’t have much appeal,” he said.

Giannopulos is less sure Google’s arrival will revive the office market on LaSalle Street, an effect officials boasted about during Wednesday’s announcement. Unlike the Thompson Center, most of the buildings are old, and the small office spaces and close columns used in century-old buildings aren’t attractive to tech firms or other companies needing downtown space, he said.

The vacancy rate for Central Loop offices just exceeded 23%, the highest ever recorded, according to a new report from commercial real estate firm Colliers International, and it forecasts that more offices will empty out later this year.

The state has been looking to unload its iconic but much-maligned downtown headquarters since at least 2003, when then-Gov. Rod Blagojevich floated the idea of selling off the building and leasing it back. Republican Gov. Bruce Rauner even signed a budget in 2018 that counted on $300 million in revenue from a theoretical sale that never happened, a gimmick that was papered over by a surprise tax windfall after Pritzker took office the following year.

The sale now is an opportunity to offload a building that would need more than $300 million worth of maintenance and upgrades and to consolidate some of its downtown workforce from leased office space.

The state plans to move about 1,800 workers from the Thompson Center and leased offices to the BMO Harris building. Reschke’s JRTC Holdings will renovate the 591,845-square-foot west building of a three-building complex at 115 S. LaSalle and 111 W. Monroe streets for the state, with the project expected to take about 18 months.

The cost will be “significantly less” than the $148 million the state was expected to pay for its renovated portion of the Thompson Center under the previous deal with Reschke, though the state did not immediately provide a firm estimate.

The move comes after the state last year paid $73.3 million to buy a 17-story, 429,316-square-foot Near West Side office building that was previously home to regional offices of PepsiCo. The governor’s office and other state agencies have moved into the building at 555 W. Monroe over the past several months.

Pritzker signed a bill in April 2019 authorizing the sale of the Thompson Center, but the coronavirus pandemic that came less than a year later sharply drove down demand for downtown commercial space and pushed back those plans. After the legislature extended the deadline to find a buyer, the state late last year announced a tentative deal with Reschke.

The Thompson Center, named for former Republican Gov. “Big Jim” Thompson, has inspired strong opinions since opening in 1985. Some see it as an iconic example of postmodern architecture, while to others it’s an eyesore.

The sale agreement requires a portion of the property to be named in honor of Illinois’ longest-serving governor, who died in 2020, and calls for the creation of a permanent exhibit or virtual educational resource acknowledging Jahn’s work and the Thompson Center’s contribution to 20th-century architecture, according to the state.

For many state employees, the building had long been an uncomfortable work environment due to temperature control issues and lack of upkeep.

Jack Lavin, president and CEO of Chicagoland Chamber of Commerce, nodded to that history at Wednesday’s news conference.

“I think I can speak on behalf of the thousands of former state employees: We are thrilled to see this day come,” said Lavin, who was previously chief of staff to former Gov. Pat Quinn and headed the state’s Department of Commerce and Economic Opportunity.

dpetrella@chicagotribune.com

brogal@chicagotribune.com

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