Who punched the spike?
Revised design lops Calatrava's top
The first rule a real estate developer adopts is: Don't risk your own money. Risk somebody else's. If he is to succeed in building a 160-story tower on Chicago's lakefront, developer Garrett Kelleher might need to break that rule and a few more.
Kelleher, executive chairman of Shelbourne Development Group Ltd. in Dublin, has given city officials plans for a vast enlargement of what's being called the Chicago Spire. It's still a design of celebrity architect Santiago Calatrava, and it's still 2,000 feet tall, but almost everything else is changed.
If City Hall consents, the building will be three times the size than under its initial plan. It will be fatter and, despite the name, will lose its spire. In its place will be 36 stories of the highest residences in the world, adding to the original count of 124.
Kelleher hopes all 1,300 homes in the new proposal will justify prices somewhere in the stratosphere for the Chicago market. But that's only one aspect of a financial proposition that could be reckless.
His Chicago attorney and spokesman, Thomas Murphy, said that provided city approvals arrive, construction financing will be in place for work to start by mid-2007. Murphy said the financing will not require that Kelleher hit a threshold of condominium sales before the money is advanced.
In high-rise condo deals, it is almost unheard of for a developer to get construction financing without pre-sales. Even Donald Trump had to secure sales contracts before getting money to build his Chicago tower at 401 N. Wabash.
Murphy said Kelleher is bypassing the pre-sale hurdle by putting substantial equity, his own money or from an unknown backer, into the deal. How much wasn't disclosed. Since buying the project from a financially strapped developer last July, Kelleher has declined interviews.
"Garrett Kelleher is interested in marketing this project globally," Murphy said. "He has a tremendous amount of enthusiasm for this project, the location and the architect."
Developers, however, are still scratching their heads over Kelleher, even if they're rooting for his success. A Calatrava building would, after all, give them cover to raise their own asking prices for future condos.
"You have to be smarter than me to figure it out. I guess I don't understand the capital structure," said Greg Merdinger, partner at the John Buck Co., builder of office and residential high-rises.
Murphy disputed suggestions the building, which by some estimates could cost $2 billion, is financially doomed. He said that ignores the appeal Chicago would have to a European buyer accustomed to higher prices.
"You look at the markets around the world, and you have to say Chicago is underpriced and maybe it's undiscovered," he said.
The redesign for the site at 400 N. Lake Shore puts the tower closer to the Ogden Slip and is supposed to minimize the traffic it generates, in part, by eliminating a planned hotel within the building.
Gail Lissner, vice president of the Chicago condo consultants Appraisal Research Counselors, could recall only one building, a posh Rush Street project from the late 1990s, that started construction without pre-sales. "It's possible" Kelleher can do it, "particularly if it's foreign money involved," she said.
Kelleher acquired the site for $64 million, with financing from Anglo Irish Bank. Anglo Irish has opened a Chicago office to handle what it has called an increase in business here. Paul Doyle, its top executive in Chicago, and the bank's North American president, Tony Campbell, did not return calls Monday.
On its Web site, Shelbourne lists several European projects to its credit, but there's nothing of the complexity and cost of the Chicago project.
David Downey, managing director of Transwestern Commercial Services, said lenders have grown more cautious in funding condos, which can force developers into putting up more equity. Downey said such a tall building, with a long construction lead-in, can throw off even the most careful cost estimates.
In the redesign, the building's garage has been moved underground. It would go down five levels. Also, the lobby has been redone to allow clear views through the base.
Kelleher said in a press release that the revisions create "something even more desirable." But desire is about sales. Financially, the building must fulfill a very tall order of its own making.