Sanitizer sale 'fiasco': How Metra's 1st real estate purchase buried it in a sinking money pit

CHICAGO (WLS) -- What was supposed to be a simple storage warehouse for the Metra transit agency has now buried the nation's fourth-busiest commuter rail system in a sinking money pit, the ABC7 I-Team has learned.

In the city of Harvey, a warehouse purchased in 2020 was advertised to Metra's board of directors as the agency's new "material distribution center," a centrally-located hub to store railroad parts, materials, and equipment, currently littered around the transit agency's railyards, according to the board-approved proposal.

ABC7 Chicago is now streaming 24/7. Click here to watch

But nearly four years later, the project has cost taxpayers about $18 million, with tens of millions of dollars still needed to complete the project, according to Metra staff speaking at a public board meeting last month.

The warehouse currently sits vacant and useless, all while the transit agency says it's facing a "fiscal cliff" in the coming years, stemming from significant financial struggles brought on by "pandemic-related changes to work patterns and commutes."

Questions are now mounting over how the agency got into this situation.

Metra's board of directors -- 11 members representing the six-county Chicago metro area Metra serves -- have not hidden their feelings of confusion and frustration over the "Harvey warehouse project."

"This is just a total screw-up by Metra getting involved with this piece of property," Board Director and Treasurer Kenneth Koehler said back in May. "What the hell are we designing that's going to cost, maybe $20, $30, $40 million? It's a warehouse! What are we designing to make this the Taj Mahal to store railroad stuff?!"

Metra's board chair Romayne Brown had pointed demands and questions about the project for the person whose name appears on the deed for the controversial purchase: Metra CEO and executive director Jim Derwinski.

"It's like we're peeling an onion," Brown said last month. "We can't get a definitive answer on where we're at with the Harvey warehouse without another layer, another layer."

Brown demanded, "This board needs to know how did we get into this fiasco, this cluster."

The Harvey Warehouse Project

Reviewing public records and Metra board meeting transcripts, the ABC7 I-Team found the Harvey warehouse, located at 17010 Halsted Street, was approved for purchase on May 20, 2020, for the price of nearly $6.8 million.

The purchase was made through state "Rebuild Illinois" bond funds, according to Metra records.

Derwinski told the Board of Directors two primary reasons were driving the transit agency's decision to purchase the warehouse property.

First, Metra needed a place to store railroad equipment overloads, scattered across its rail yards that were often getting in the way of its work. And the second, more pressing reason at the time, was the COVID-19 pandemic.

Derwinski said the agency was facing potential layoffs for its workforce and Metra's Executive Leadership Team saw the building purchase as an opportunity to repurpose employees to work on and make improvements to the warehouse.

"We absolutely were on the verge of having to have massive layoffs here at Metra," Derwinski said at a Metra Board of Directors meeting last month. "[At that time] we did not have federal COVID money coming in so we saw an opportunity to shift workforce into this building at that period of time to keep them working under capital dollars, knowing that operating dollars had completely collapsed."

At the Board of Directors' May meeting, Metra's CEO said the agency agreed to purchase the property "as-is" with no prior inspections.

When challenged why the building was purchased this way, Derwinski only offered that this was the first time the transit agency purchased a used property in its entire history.

"In hindsight, we've certainly learned a lot on this project," Derwinski said. "This is Metra's first purchase ever of a building like this in its history. We've purchased railroads, but we've never purchased a building, a used building. So absolutely, in hindsight, we found that our processes between the real estate department has to be improved if we are to purchase any more buildings in the future."

The 153,000 square-foot warehouse, sitting on nearly 10.5 acres of land, was originally built in 1972 for the Wickes Furniture company and showroom.

Property records show the building and land was acquired in 2002 by a company called Summit Laboratories; the company that would end up selling the warehouse to Metra in 2020.

Summit Laboratories produced hand sanitizer and other products, according to online listings and business filings.

One board member asked Metra's CEO how the agency found the building in the first place.

"This one came up to the executive team as an opportunity tied to a great location and at that time, looked like a great price point," Derwinski said.

"But [did it come] through an independent broker? Did we have a prior relationship with the seller?" one of Metra's directors asked.

Derwinski answered, "None. No, this was mostly our engineering and materials management team out looking for something that was available."

But the ABC7 I-Team found Metra did have a prior contract with the seller, Summit Laboratories.

Contract and expenditure records show Metra purchased hand sanitizer from the company at the end of March of 2020, just before the warehouse proposal was pitched to Metra's board of directors.

Over a four month period, expenditure records reviewed by the I-Team show Metra paid Summit Laboratories a total of nearly $750,000 for hand sanitizer.

Then, on October 6, 2020, Metra paid $6.8 million for the warehouse where that sanitizer was made, according to expenditure and property deed records reviewed by the I-Team.

After Metra's board meeting Wednesday morning, Derwinski told the I-Team the hand sanitizer and real-estate transactions weren't connected.

"We did have contracts with [Summit Laboratories] as a supplier of hand sanitizer in an emergency situation, where there was no other ability to get hand sanitizer," Derwinski said. "I didn't look at that as part of a deal. Like we didn't go in there and say, 'Well, only if you sell this, then we'll buy that.'"

Pressed for answers by its board of directors this past May, a report submitted by Metra staff this month states that an internal review of records found no relationship between Summit Laboratories and transit agency staffers and executives.

The report also stated it could not identify which Metra staffer initially brought the Harvey warehouse property sale option to the Executive Leadership Team prior to its board approval.

The owner of Summit Laboratories told the I-Team they had no ties to Metra staff, but directed any further questions about how the property sale took place back to Metra.

Metra officials have told board directors that a total of $17.9 million has been spent on the Harvey Warehouse Project to-date.

That amount includes the purchase price, replacing the warehouse's roof, the creation of office space inside the building, and storage racks installed inside the warehouse along with other construction-related costs.

Since the project is expected to require tens of millions of dollars more to finish, and will likely take at least two more years to complete, some Board Directors questioned last May whether the agency should sell the property, and cut its losses.

"Given what we know, and the fiscal cliff, we need to know the numbers and how much we need this particular piece of property," board director Melinda Bush said during the May meeting. "There are a lot of things we need to weigh out right now. My concerns are how much this is going to cost to move forward and are we so into this that we could cut our losses and go someplace else."

"In hindsight, maybe we should have never purchased this one," said board director Wes Becton last May. "This is going to be a case study of how not to do something. People will be studying this down the road."

Metra staff have laid out a number of paths forward with the Harvey warehouse project, and the board of directors is expected to discuss the report at its next meeting in July, a spokesperson for the agency said.

Derwinski told the I-Team the project is important, and despite the agency facing a "fiscal cliff," the warehouse is needed.

The fiscal cliff is an operating dollar problem. The capital dollar side about making- taking care of the assets that we're entrusted to take care of, that's this conversation right here," Derwinski said. "The fiscal cliff, it's real. It's big. But that really has to do with the operation."

Derwinski continued, "One of the things that we never did before was rebuild equipment at the pace that we're rebuilding now. That requires a tremendous amount of storage to have all those new parts ready and then some of the other parts that are usable or might be turning in for warranty or rebuild, you got to have room for that."