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Real estate developers may have won the war over the future of the North Branch of the Chicago River, but they're bracing for a new kind of a battle with a lone industrial holdout.
Their new adversary: Iowa Pacific Holdings, a little-known Chicago company that owns railroad tracks along the river and potentially, the power to delay a push to transform part of the industrial North Branch with new office, residential and retail projects. One developer, Sterling Bay, has already taken legal action against the company.
Iowa Pacific has drawn the ire of nearby property owners and city officials by moving a couple dozen empty tanker cars onto tracks on Goose Island. They're a nuisance and safety hazard, neighbors say.
Some property owners also contend that the maneuver is part of a broader scheme to shake them down. Iowa Pacific's message: Pay us what we ask, and we'll remove the cars and abandon the tracks.
Goose Island landlord Matt Garrison called the company a "railroad troll," comparing it to patent trolls, firms that obtain patents for the sole purpose of suing other companies for patent infringement.
"I believe the company's M.O. is to store cars on the train tracks in an attempt to get payments from developers, property owners and the City of Chicago," said Garrison, managing principal at R2, a Chicago developer that owns a building right next to Iowa Pacific's tracks.
Iowa Pacific denies that's it's true motivation, saying it's running out of tracks for its railcar storage business amid a nationwide glut of tanker cars.
"We want to be good neighbors, but we have to run our business just like everybody else has to run their business," said David Michaud, Iowa Pacific's general counsel.
Iowa Pacific is already defending itself against a push to take away some of its tracks in the area. A venture led by Chicago-based Sterling Bay recently filed a notice that it plans to seek the intervention of the federal Surface Transportation Board. It wants the board to require an Iowa Pacific unit to abandon tracks that run from Elston Avenue across the Chicago River, through the former Finkl steel site and then down through Goose Island.
Sterling Bay has a lot at stake because it owns the vacant 28-acre Finkl property and plans a major development called Lincoln Yards on it and neighboring parcels. A working rail line would disrupt its push to develop the tract, considered a potential site for Amazon's second headquarters.
The dispute adds an unexpected wrinkle to the city's plans for the North Branch, a 760-acre industrial corridor stretching from Kinzie Street to Fullerton Avenue. Over the objections of industrial companies in the area, the city recently relaxed zoning in parts of the corridor to allow for residential other commercial development there. The dispute also underscores why cities need to use zoning to keep industrial and other uses apart.
"Freight rail activity, including rail car storage, is incompatible with the City of Chicago's recently adopted North Branch Industrial Corridor Framework Plan and with Sterling Bay's vision for Lincoln Yards," Sterling Bay said in a statement. "We have initiated the required steps for federal approval of the abandonment of freight service on rail lines operated by (Iowa Pacific subsidiary) Chicago Terminal Railroad in the North Branch Corridor area."
Sterling Bay Managing Principal Andy Gloor declined to comment.
Iowa Pacific plans to oppose Sterling Bay's petition. Michaud said the firm has every right to continue to use the tracks for storing rail cars and denies that they are a danger or hazard.
Photo by Iowa Pacific Holdings
Though the two sides could reach a financial settlement under which Iowa Pacific gives up the tracks, the case could also drag on for months or years, frustrating Sterling Bay's push to develop its property.
The city's transportation commissioner, Rebekah Scheinfeld, also has gotten involved, writing a letter to Iowa Pacific President Edwin Ellis demanding that the company remove the tanker cars.
"This situation obstructs and increases safety risks for vehicular, bicycle and pedestrian traffic," she wrote.
Garrison himself is weighing his options. He said he asked Iowa Pacific to remove the tanker cars outside his building at 909 W. Bliss St. The company agreed, but only if he immediately paid $275,000, ending that conversation.
Photo by Manuel Martinez
Michaud said Iowa Pacific came up with that number by calculating the income it would lose by not using the tracks outside Garrison's building.
Goose Island is still largely industrial, and the city aims to maintain that while also encouraging office development there. Garrison is courting office tenants for a redevelopment of his Bliss Street building and another big office project he plans down the street.
Photo by Manuel Martinez
Iowa Pacific, which bought the North Side train tracks in 2006, stores more than 6,000 rail cars nationwide, including some on tracks in Elk Grove Village that are almost at capacity, Michaud said.
The company uses the Goose Island tracks for overflow and plans to move even more rail cars there in the future, he said.
"Chicago is a central hub of the entire railroad network, so there's huge demand for car storage here," he said.
This article first appeared on www.chicagobusiness.com
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