Chicago will grant $150 million in subsidies to real estate developers to convert unused office space in the once-vibrant downtown district into hotels and apartments in hopes of revitalizing the deteriorating area..

Under the plan — the most generous by any city addressing the commercial real estate crisis sparked by the pandemic — the taxpayer money will help create 1,000 apartments in four buildings, as long as about a third will be set aside as affordable units, according to The Wall Street Journal.

The move comes as the Democrat-led Windy City has been plagued by rampant crime and the flight in recent years of major companies — including Ken Griffin’s hedge fund Citadel and aerospace giant Boeing. Griffin said the last straw in his decision to relocate Citadel to Florida in 2022 came after a colleague was robbed while having a gun pressed to his head during a coffee run.

Aside from the city’s lawlessness, Chicago’s office market has been beset by weakening demand, higher interest rates and difficulties in refinancing, The Journal reported.

Mayor Brandon Johnson, a progressive who defeated Lori Lightfoot last year, ran on a platform of increasing taxes on businesses. But he has been forced to ally with the real-estate community to save the downtown’s commercial office district.

Earlier this year, he appointed a real-estate executive to lead the citys Department of Planning and Development, and Johnson’s subsidy plan has earned praise from the business community.

In March, Chicago businesses backed Johnson’s plan to sell up to $1.25 billion in housing and economic development bonds designed to spur economic growth and the construction of more affordable homes.

He does not want to be the mayor who loses downtown, David Reifman, who served as commissioner of planning and development under former Chicago Mayor Rahm Emanuel, told The Journal.

Other US cities — including New York, where some unused office buildings are being converted into residential real estate. — have faced similar difficulties since the pandemic, but Chicago’s woes are the among the worst.

In early 2020, Chicago’s office vacancy rate was 11.9%. In the second quarter of this year, the vacancy rate stood at 16.3% — well above the national average of 13.8%.

Last year, fewer than five large-office buildings were sold, according to the Building Owners and Managers Association of Chicago. The deals that were finalized resulted in losses ranging from 50% to 90%.

Data from KBRA Analytics shows that three-fourths of the mortgages that back Chicago office space are either in default or are at risk of default.

Chicago, the birthplace of the skyscraper, has seen some of its tax revenue dry up thanks to the declining values of commercial real estate.

In a sign of just how dire the commercial real estate market is nationwide, Starwood’s Real Estate Income Trust, which is run by real estate mogul Barry Sternlicht and his company Starwood Capital Group, announced that it would impose tighter limits on investors’ ability to pull money from the $10 billion fund.

The move by SREIT is seen as an effort to delay selling off assets at a loss. By the end of April, SREIT had just $752 million in available liquidity, according to Bloomberg News.

Before the move, investors could redeem withdrawals of up to 2% of net asset value. Now they could only withdraw 0.33%.

Sternlicht said in an emailed statement that the company believes “the real estate markets are bottoming and will continue to improve from here” and thus “further leveraging the vehicle or selling our portfolio’s assets to meet monthly redemptions would negatively impact all investors.”

Treasury Secretary Janet Yellen said earlier this year that she expects additional bank stress and financial losses from weakness in the commercial real estate market but believes this will not pose a systemic risk to the banking system.

Yellen told a Senate Banking Committee hearing that regulators are working with banks to address risks caused by higher post-pandemic vacancy rates for many office buildings in larger cities, and higher interest rates for refinancing loans.