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City&Country: Cover Story-- Chicago Spire awaits white knight

The global credit turmoil has struck what was once touted to be the world’s  tallest residential building. Targeted to be ready sometime next year, the Chicago Spire is still a gaping hole in the ground, with no completion in sight.

The mega development’s estimated gross development value is about US$2.4 billion. Developed by Dublin-headquartered Shelbourne Development, which is controlled by company chairman Garrett Kelleher, it has been struggling to secure fresh funding to restart the project. Construction ground to a halt about a year ago, and according to a Dec 21, 2009, article in Chicagobusiness.com, the developer needs US$170 million (RM579 million) in short-term financing to pay off existing debt in order to move the project forward.

Kelleher moved from Ireland to Chicago in 1984, after studying mathematics at Trinity College in Dublin. He worked as a paint contractor and eventually built a major painting business in the Midwest. Kelleher cut his teeth on property development when he remodeled a building in Chicago. He eventually became a noted real estate developer in both the windy city and Dublin. The property tycoon has major real estate investments in the US, Ireland, UK, France and Belgium.

Hit hard by global slowdown
The credit crunch that pummelled the US economy literally brought down the rising star of the Chicago skyline as funds dried up. The problems have been exacerbated by several lawsuits against the developer, including one from the project architect, Santiago Calarava, who filed a lien against Shelbourne Development seeking US$11.3 million in late payment, as reported in Chicagotribune.com on October 17, 2008.

On Dec 8, 2009, The Wall Street Journal reported a possibility of funding from several big US investment funds affiliated with labour unions. A subsequent article on Chicagobusiness.com on Dec 21, 2009, said those funding entities passed on rescuing the Chicago Spire due to the uncertain market conditions and the fact that construction lenders typically provide funds only after a developer sells 50% of the units in a condo project.

At the end of a worldwide marketing blitz, the developer said in June 2008, about 30% or 352 of the 1,193 units were sold, with a mix of American and international buyers.

In an email response to City & Country, a spokeswoman for Shelbourne Development says the project has not been abandoned. “Currently, the project completion dates remain unaffected as time allowances for unanticipated events were included in the original schedule.”

The spokeswoman says 30% of the units have been sold, and that they still receive interested parties at their sales office on the 18th floor of NBC Tower that overlooks the project site.

Asked about cancellations, she says, “Our buyers are not looking to cancel as they knew it was a four to five-year project. They are people who understand the iconic nature of the building and the prestige of owning a home or investment in a Santiago Calatrava-designed building.”

Pomp and fanfare
It was in late 2007 that the Chicago Spire was unveiled in the US with much pomp and fanfare. A much-published worldwide marketing and sales campaign immediately followed, led by Savills, a leading global real estate service provider listed on the London Stock Exchange.

Malaysia was among several Asian countries on their list, and in early 2008 the who’s who of Kuala Lumpur gathered for the exclusive launch at the Mandarin Oriental Hotel. Potential buyers were told the tower would house 1,193 unique apartments on 150 levels that would reach up to 2,000ft in the sky. The project’s spiral design, resembling a drill bit, would be achieved by rotating each floor about two degrees from the one below it. Moreover, the tower would give owners a magnificent view of Chicago, and those on the top most floors a view of the curvature of the earth.

Today, what is certain is that Chicago Spire will probably not meet its target 2011 completion. It is also not immediately known whether any Malaysians have bought into the project. Savills Rahim & Co managing director Robert Ang says the response at the Malaysian launch to the luxurious development was positive with plenty of interested queries. He declines to say if any sale was clinched or to comment on the future of the project.

At the height of its sales hype, the Chicago Spire was chasing the world’s tallest building title alongside Burj Dubai (now known as Burj Khalifa). So intense was the competition that the builders of Burj Khalifa deliberately kept its exact height a secret.

But on Jan 4 this year, amidst grave uncertainty over the future of Dubai, the 2,717 ft tall Burj Khalifa was unveiled. While the Chicago Spire was designed to be purely residential, Burj Khalifa is a mixed development with residences, hotels, restaurants and offices. For now, Chicago Spire, located on a 2.2-acre site where the Chicago River meets Lake Michigan, only has its completed foundations to show.
According to its promotional materials, the Chicago Spire apartments are to be sized from a modest 534 sq ft to a sprawling 10,293 sq ft. The cheapest unit costs US$750,000 and the most expensive is tagged at a whopping US$40 million.

To pamper buyers, no two apartments are alike and buyers enjoy a deferred payment scheme; they only need to pay 15% of the purchase price and the rest upon completion of the tower. To further sweeten the deal, the developer provided a capital guarantee of 7.5% return for two years upon completion of the project under a rent-and-lease concept.

Interestingly, in September 2008, the penthouse — a duplex on the 141st and 142nd floor with about 10,000 sq ft of space — was reportedly sold to Ty Warner, the CEO of Ty Inc, the company that bought You, the beanie baby plush toys.

Warner, also an hotelier, is one of the richest men in America with a net worth of about US$4.1 billion. Although the selling price was not disclosed, reports and those familiar with the Chicago real estate scene have put the purchase as the most expensive residential sale recorded there. An update of the sale could not be ascertained.

Global road show
In the March 17, 2008 issue of The Edge Singapore, Kelleher and internationally renowned architect Santiago Calatrava provided insight into the development — Calatrava described the project as a vertical city and one of his “biggest architectural achievements”.

Kelleher focused on why Chicago Spire, and Chicago itself, was a worthwhile investment, pointing to the weak US dollar and the relatively stable Chicago market. “Chicago is a city that has never had the peaks and troughs of the East and West coasts of the US… It’s a diverse economy, with single-digit growth from 3% to 4% up to 7% to 8% [a year],” he reportedly said adding Chicago could host the 2016 Olympic Games. As a result, property values would certainly increase. Chicago has since lost the bid to Rio de Janeiro, Brazil.

The report said many affluent Singaporeans and expatriates showed interest in the project, but no sales figures were cited.

The marketing of Chicago Spire was also taken to Asian cities like Hong Kong, Shanghai and Beijing before it embarked on a 15-city road show in Europe, the Middle East and South Africa.
Then the excitement fizzled out.

Confidence shaken
In an ad hoc poll conducted by Chicago Tribune columnist Eric Zorn in his column “Change of Subject” where he asked readers to vote if they agreed or disagreed with his predictions for 2010, early this year. A total of 61% out of 450 readers agreed with his prediction that the Chicago Spire would not resume construction in 2010.

Sentiments are not helped by the fact that the state of Illinois, where Chicago is situated, is one of four states that accounted for 52% of the nation’s total foreclosure activity in the last few months of 2009. The others were California, Florida and Michigan.

Although the economic situation in the US has stabilised somewhat, the housing market is still precarious. Analyst Adrienne Warren — in Scotiabank Group’s Global Real Estate Trends report dated Jan 11, 2010 — said although sales and pricing have begun to show modest improvement, any significant turnaround would be delayed by the combination of more cautious bank lending and a large supply glut. While inventories of unsold homes have declined appreciably in recent months, foreclosure rates remain around all-time highs, adding to existing overcapacity and depressing selling prices, Warren added.

For now, the Chicago Spire remains in limbo, awaiting a white knight.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 791, Feb 1 – 7, 2010

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