Olympic Village major gamble
Developers intrigued by mayor's plan
The financial centerpiece of Chicago's bid for the 2016 Olympics, a huge housing development on the lakefront south of McCormick Place, is offered as evidence that the city can sustain a privately funded staging of the games.
But the housing plan carries enormous risk. Real estate experts said that because of its size and intended use, the housing cannot be financed in the manner of most high-rise condominium projects.
They said lenders and investors will have to sink in more cash up front, trusting that the roughly 5,000 units being contemplated will eventually sell. For standard financing, condo developers need to have sales contracts for most units before they can get money to start construction.
(Chicago 2016)
PHOTO GALLERY
Chicago Olympic designs
"You build those buildings and you will be creating a lot of value,'' said Richard Stein, senior managing director of real estate for Mesirow Financial. A promise of deferred but large profits could encourage financial support for the project, he said.
But Stein said that with the project still years away, any financial projections are just best guesses. "It's a long way to go on this," he said.
Sources said Stein's firm has signed a letter for the Chicago 2016 organizing committee affirming its interest in building the homes, which would first be used as dormitories for Olympic athletes. Stein would not confirm that but said he was an adviser for the city's bid.
The sources also said Magellan Development Group LLC signed the letter. Magellan is the top developer of the Lakeshore East neighborhood on the lakefront south of Wacker Drive.
The company's co-leaders, Joel Carlins and James Loewenberg, would not confirm any letter. They said the project intrigues them despite an exceptionally long time frame.
"Joel and I both wish we were 20 years younger," Loewenberg said. He called the proposed Olympic Village, with a cost estimate of $1.1 billion, a "fascinating idea," adding that "it's a mammoth project and you have to sit down and figure out how to make it work."
The Chicago 2016 committee said six developers signed the letter expressing interest in the project. The letter was forwarded to the U.S. Olympic Committee as part of Chicago's bid package. The committee, chaired by business executive Patrick Ryan, did not disclose the names of the developers.
Others believed to have signaled their interest are investors behind the Central Station project south of downtown. Those include Gerald Fogelson of Fogelson Cos., Albert Ratner of Forest City Enterprises and Ronald Shipka of Enterprise Cos. The size of the Olympic Village poses its most daunting challenge. At about 5,000 units, it represents the total sales the downtown condo market generates in one good year.
Because the housing would be needed for the athletes, developers would have to build it regardless of advance sales of the homes. Most large-scale projects, such as the successful Lakeshore East, can advance a building at a time, selling out one before starting work on the next.
Also, organizers of the Chicago bid said $50 million in "rights fees" from the developers would help finance an Olympics stadium proposed for Washington Park.
How that would work is hard to imagine. Any hard cash from developers probably would have to be used as equity toward the housing component.
Patrick Sandusky, a spokesman for Chicago 2016, couldn't discuss specifics of the financing but said the interest shown by developers proves the committee's assumptions are sound.
One of Chicago's most active builders, requesting anonymity forear of riling City Hall, said anybody who takes on the housing project will be lucky to break even. "I can just see how this will work. You get cost overruns and the developer has to eat them.
"Yeah," he said derisively, "that sounds like the sort of deal for us."