Could Chicago tower pop the real estate market?

Tuesday, July 26, 2005
By Alex Frangos, The Wall Street Journal

There will be plenty of oohs and aahs tomorrow when Chicago developer Fordham Co. unveils plans to erect the tallest building in the U.S., a 115-story, torquing condominium-and-hotel tower designed by Spanish architect Santiago Calatrava.

But there also are likely to be questions from people who study the residential real estate market: Will this pointed tower on the shores of Lake Michigan be the pin that prick's Chicago's condo bubble?

Chicago, along with the rest of the country, has been condo crazy the past few years. The Windy City will add 7,499 newly built units this year, down 33 percent from 2004 but still among the top three nationwide, according to Property & Portfolio Research Inc. and Reed Construction Data. Only Miami and San Diego are building more. Donald Trump, for one, has a big condo project under way on the banks of the Chicago River. Meanwhile, nationally, median condo prices hit a high in June at $223,500, up 15 percent from the year before, according to the National Association of Realtors.

With for-sale signs plastered on new condo buildings everywhere, Chicago real estate experts say the high end of the market may be cracking. "I would be quite hesitant to put up more residential units in Chicago," says Louis G. Conforti, head of Chicago-based real estate investment company Greenwood Group LLC. "We've had a shipload of project come online in the last three years," he says. "The market is slowing."

Christopher T. Carley, the tower's developer, is undeterred. He predicts his chances of success with the $400 million-plus structure as "better than any building I've ever built." Still, he says he wants to sell half the units before construction. If the demand doesn't materialize, neither will the tower.

Chicagoans have consistently gobbled up high-end pads in the towers that have gone up in recent years, he adds. The demographic group he covets are baby boomers moving to the city after "the last kid goes to college and the dog dies," along with 30-something professionals with money and no kids.

He's attracting them in part with the flair of Mr. Calatrava, who also is a sculptor and is well known for his bird-like extension to the Milwaukee Art Museum, 90 minutes north of Chicago. Mr. Calatrava likens the trim skyscraper he has designed to the knotty curves of a tree trunk or a person twisting. The building resembles a metal drill bit in its tapered, twisting form, something the Iberian brushes off. "It has more to do with a natural sense of growth and verticality than in any metallic tool-like object," he says by phone from his Valencia, Spain, studio.

Dubbed the Fordham Spire, the tower will reach 2,000 feet at its tip, higher than the symbolic 1,776 feet of the planned Freedom Tower at the site of the World Trade Center in New York and well above the nearby Sears Tower, which at 1,353 feet is currently the tallest in the U.S. Tallest in the world is Taipei 101, standing 1,671 feet in Taiwan's capital city. A new global height champion is under construction in Dubai that will top 2,300 feet when finished in 2008.

If built, the Fordham Spire will probably remain the nation's tallest building: The Federal Aviation Administration doesn't allow structures above 2,000 feet. "The height is not a statement," Mr. Calatrava says. "It doesn't need to be the tallest. It's just the right proportion." Mr. Carley concurs: "I just want a beautiful landmark building for Chicago."

The skyscraper will have around 250 units, plus a 200-room luxury hotel. Fordham is looking for a hotel partner. Ringing the base will be townhouses, restaurants and retail stores.

Mr. Calatrava is renowned for building soaring, almost skeletal-looking structures. His recent projects include the roof of the Olympic stadium in Athens and an apartment building in Malmo, Sweden, called Turning Torso. He also is designing a $2 billion transit hub at the World Trade Center site.

The new tower would compete with Mr. Trump's 92-story condominium and hotel, now under construction on the site of the old Chicago Sun-Times building about a mile away. But with at least half a dozen other superluxury projects in Chicago, it isn't clear that there are enough rich buyers around to fill a project as ambitious, and as expensive, as Fordham's. Buyers would pay at least $850 a square foot, a level Mr. Conforti says is hard to sustain.

There are other obstacles: Mr. Carley is in contract to buy the plot, but the project is contingent on city approval of a key zoning change. Another question: Do people want to live at such great heights? Businesses have expressed trepidation at taking thin-air space in landmark structures. The Sears Tower is 30 percent vacant, and no one has signed up for space in the Freedom Tower.

Signs of sluggishness dot the Chicago real-estate landscape. A handful of projects have suffered slower-than-expected sales, forcing developers to restructure loans or cede unsold units to banks. This spring, Mr. Carley refinanced a $53 million loan on a 50-story condo tower when the units sold slowly. He says the refinancing took advantage of lower interest rates.

Mr. Carley says lenders are lining up to support the project. But one lender who expressed interest is proceeding cautiously. "Chicago appears to be a market that there's been significant overbuilding," says Todd Johnson, managing director of ASB Capital Management Inc. of Bethesda, Md. But, he adds,"Projects like this are unique. Calatrava is clearly the architect of the moment. For that reason we'll look at it."

Of course, plans for tall buildings get thrown out as often as socks with holes in them. Daniel Burhnam, one of Chicago's great 19th century architects and builder of the 1893 World's Fair, famously said, "Make no little plans."