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THE WATCHDOGS: Water reclamation district admits it’s long rented out land at bargain prices

Saturday, May 09, 2015
Chicago Sun-Times
by Tim Novak

Ameropan Oil Corp. 3301 S. California. Brian Jackson / Sun-Times

Over the past 99 years, the Metropolitan Water Reclamation District of Greater Chicago has leased nearly 12 acres it owns along the Stevenson Expressway to a string of tenants, never getting more than $3,450 a year for the land.

When the lease expired Sept. 30, the sewage-treatment agency decided to see if it could get more money leasing the land, which hadn’t been on the market since 1915 — when President Woodrow Wilson was trying to keep the United States from entering World War I.

The agency sought bids for the property at 3301 S. California, aiming to get at least $601,000 a year — nearly double the $309,925 it collected in rent on the land over the past 99 years.

This was another chance for the district to make up for a century of handing out bargain-priced leases on its properties they acknowledge “aren’t even at market-value.” But it ended up creating a new mess that a federal judge may have to sort out.

Two companies put in bids.

Ameropan Oil Corp., which has been operating an asphalt plant on the property since 1988, offered to pay $607,010 a year to continue leasing the land for another 39 years. That would come to about 175 times more than the company had ever paid the water reclamation district in a single year.

Gardner-Gibson Inc., another Florida asphalt company, offered to pay $776,000 a year, or about $30 million over the course of a 39-year lease — about 28 percent more than Ameropan. That would have amounted to $175,000 a year more than agency officials said they’d hoped to get.

But the water rec district rejected both offers and asked for new bids, hoping to drive up the price for leasing the land along the south shore of the Sanitary and Ship Canal.

Meanwhile, the district’s nine elected commissioners gave Ameropan a permit in March to keep using the land for another three years for $601,000 a year — the figure the board had set as the minimum bid for a new lease.

Gardner-Gibson cried foul. It filed a federal lawsuit April 2, accusing the agency of violating Illinois law by failing to award the lease to the high bidder.

“How is this in the public interest?” says Gardner-Gibson attorney Timothy W. Wright III.

Ameropan’s lease was one of many bargain-basement, long-term deals the government sewage-treatment agency and its predecessor have handed for decades, a Chicago Sun-Times investigation has found.

Asphalt plants, oil refineries, scrap metal companies, park districts and a wide range of other tenants all have benefited from the leases.

And even as many of the antiquated leases have expired in recent years, the district has continued to lease out property at bargain rates, the Sun-Times found.

watchdogs-CST-051015

Altogether, the sewage-treatment agency has about 1,260 acres of vacant land available for lease, most of it in Cook County. It could sell land that it doesn’t need. It’s done that in some cases, for instance selling 400 acres to the Will County Forest Preserve District five years ago for $2.6 million.

But agency officials have chosen not to sell off land in Cook County.

“We have a policy not to sell property [inside Cook County] because we get a fairly good revenue stream from these properties,” says David St. Pierre, the agency’s executive director. “We have very desirable property. It’s waterfront property.”

Last year, tenants paid the district a total of $16.9 million. That’s up 70 percent from 2010, though still just a fraction of the district’s $1.2 billion yearly budget for managing storm water and treating sewage in most of Cook County.

 

David St. Pierre

David St. Pierre

 

St. Pierre says expects that revenue will continue to grow as “legacy leases that aren’t even at market value” — such as Ameropan’s — expire.

Also, he says the district, which in the past often gave tenants leases that lasted 99 years with no escalator clauses to increase the rent, now limits tenants to 39-year leases that can be renegotiated every 10 yearsBut it will be many years before some of the deals run out. And even some of the deals negotiated in recent years appear to be bargains, with some tenants paying nearly as much, or even more, in property taxes as they are charged for rent. Consider:

• Last year, Bell Oil Terminal paid $67,074.45 in property taxes for 12.8 acres at 3600 S. Central it leases under a deal dating to 1952 that doesn’t expire until 2051 — but only $2,997 in rent.

• The Sheridan Shore Yacht Club in Wilmette paid $44,470.11 in property taxes and just $32,127 in rent for about half an acre under a lease signed in 1986 that expires in March 2016.

• Prestone Products Corp. paid $109,000 to lease 6.75 acres in Alsip under a deal it got in 2007 that expires in 2046. Its property-tax bill was $100,948.14.

• Olympic Oil paid $175,000 for 8.7 acres in Cicero under a lease that began in 2004 and expires in 2043 — and $142,528 in property taxes.

The Ameropan lease is for its Interstate Asphalt, which has been operating on 11.7 acres of water reclamation district property on the Sanitary and Ship Canal since 1988. That’s when it took over a lease originally signed on Oct. 1, 1915, with the Albert Dickinson Company. Rent under the original lease began at $2,300 a year in 1915, escalating to $3,450 annually for each of the lease’s last 49 years, which ended last September.

Last year, Ameropan also paid $83,559.92 in property taxes — more than 20 times the rent it had been paying before the lease expired.

The district rejected Ameropan and its rival Gardner-Gibson’s offers and asked for new bids. St. Pierre says that state law allows the district to do that and seek new bids that are at least 5 percent higher than the original high bid of $776,000

Who ends up getting the land now appears likely to be decided by the courts.

On March 19, with the lease still up in the air, the nine water reclamation district commissioners granted Ameropan three more years to operate on the district land, though under a permit, rather than a lease. The commissioners — Michael Alvarez, Frank Avila, Timothy Bradford, Barbara McGowan, Cynthia Santos, Debra Shore, Mariyana Spyropoulos, Kari Steele and Patrick Daley Thompson — said that would give the company the time, if necessary, to shut down its plant and clean up the property.

Ameropan could have submitted a new bid to stay there long-term. But it didn’t, saying it didn’t need to, that it should get the lease anyway.

“This amended round of bids is invalid,” the company’s attorney Richard Carbonara says.

He argues that, for technical reasons — including that Gardner-Gibson listed its name more than one way — “they were not responsive bidders. We were the only responsible bidders.

“I think there is only one responsive bidder — us.”

Gardner-Gibson did file a new bid on April 15, offering to pay $841,000 a year for 39 years to lease the asphalt-plant property.

The water reclamation district board is expected to vote on the lease later this month.

But even as it made a new offer for the land, Gardner-Gibson also sued the district in federal court on April 2, accusing it of failing to follow state law by not taking the highest bidder.

Ameropan countered in court documents that it’s the only legitimate bidder — and it should get the deal.

 



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