Profit doubts shadow tower

Tribune staff reporter

The proposed lakefront hotel/condominium skyscraper to be designed by Santiago Calatrava is confronting not only doubts about whether the 115-story tower can be built, but also a separate, but closely related, question.

Can it be profitable?

"There are many examples of very fancy buildings that buried the developer," said David W. Ruttenberg, chairman and chief executive of Chicago-based Belgravia Group Ltd., which is co-developing its own luxury condo project at 600 N. Lake Shore Drive.

Developer Christopher Carley on Wednesday proposed a 2,000-foot-tall tower on a site along the north bank of the Chicago River, just west of Lake Shore Drive, that would be the tallest in the nation.

"The interest we have received in the project has been nothing short of phenomenal," said Carley, chairman of Chicago-based Fordham Co.

But the most recent proposals for "tallest" towers in Chicago have ended painfully, with lenders taking over the sites before construction began. In 1992 a bank foreclosed on the vacant parcel at 201 W. Madison St. where developer Miglin-Beitler Inc. proposed a 125-story office tower. And five years ago developer Scott Toberman handed back to his lender the deed to the property at 7 S. Dearborn St., where he proposed a 112-story skyscraper that would have included high-priced condos as well as office space.

In contrast to those failed, office-driven proposals, Carley, the chairman of Fordham Co., is betting on the continued strength of the residential market, which has been the driving force of the downtown building boom. Also a key advantage: a bevy of investors and lenders that are eagerly looking for real estate deals.

Most of the up to 250 condos in Carley's Fordham Spire project would be between $1 million and $2 million, with average asking prices of $800 a square foot. Financing has not been finalized, and will depend on sales of the condos, which will account for about two-thirds of the space in the nearly 1 million-square-foot building.

Carley has said he expects to have sale agreements for at least 40 percent of the units, a figure that most local real estate executives think is nearly impossible at such stratospheric prices, despite the keen interest sparked by Calatrava's distinctive design.

"On a lot of fronts this looks very sexy," Ruttenberg said. "But in the last analysis it will be extremely challenging to control your costs and complete your sales."

If so, Fordham Spire could be just successful enough to be a costly failure. Few remember now that the 110-story John Hancock Center was a financial fiasco for its developer, Jerry Wolman, who was kicked off the massive project by its namesake lender, filed for bankruptcy and lost the Philadelphia Eagles.

The building is still one of the city's best known addresses--where $1 million homes are not uncommon, though many are below that price--26 years after its completion.

Carley's most recent project, the Pinnacle, at 21 E. Huron St., may provide a cautionary lesson about the challenges of the high-end residential market. Completed late last year, Carley has called the 49-story development a "home run."

But after four years of marketing, 48 out of 213 units are still unsold. Many are larger, more expensive ones similar in price to the units that would be crucial to the success of the Calatrava tower, according to a loan document filed June 23 with the Cook County Recorder's office as part of a refinancing.

The unsold units are 22 percent of the total, but they account for 28 percent of the building's total space.

Completing the project successfully will require a mad rush to the finish line, with a sudden burst of sales totaling nearly $63 million, an average of $1.3 million per unit, based on minimum prices specified in the loan document.

Many experts think such a pace is unlikely, given the project's history. The minimum prices exceed the projected cost to complete the project by less than $1 million.

But Carley rejects any suggestion that the Pinnacle might barely break even.

"We're way above the minimum prices; we're making a hell of a profit," he said.

The highly leveraged project was financed with $183.8 million borrowed from Chicago-based Corus Bank and National Electrical Benefit Fund. A Carley-led group contributed cash of $6.9 million. The bank and the pension fund have expressed interest in financing the Calatrava tower, Carley said.

Carley says he expects sales to be mostly completed by the end of the year. There were 45 units unsold at the time of the refinancing, and that number drops to 32 after factoring in pending sales contracts, including two penthouse units, he added. And he expects enough sales before year-end to pay off the loans.

"I'm looking gleefully at the next three, four, five months here," he said.


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