Market Conditions: Credit Crisis Stalls The Spire and Waterview Tower Construction
Even the New York Times is interested in Chicago real estate.
We’ve chattered several times about the lack of construction at both The Spire and Waterview Tower in recent months. It’s a combination of there being absolutely no financing going on for these massive buildings along with the rapid slowdown in condominium sales.
“If I’d known in July of 2006 that the world would be where it is today, I would have done a lot of things differently,” Mr. Kelleher, developer of the Spire, said.
So far, Mr. Kelleher has invested about $250 million in the Spire; $180 million was cash from his own holdings and $70 million was in the form of two loans from the Anglo Irish Bank in Dublin.
When construction started, the plan, while aggressive, made sense. Total condominium sales were estimated at $3.4 billion, against total costs of $2.3 billion.
The project initially did well, selling just over 30 percent of its 1,194 units in the first eight months, at prices ranging from $750,000 to just under $40 million. The latter — for the 10,000-square-foot penthouse — is the highest price ever paid for a condominium in downtown Chicago. The contracts extend until the fourth quarter of 2013, and deposits are held in escrow until then.
Also significant was the fact that more than half of the sales were to individuals or entities outside the United States. “We launched in January” of 2008, Mr. Kelleher said, “and went to Beijing, Singapore, Hong Kong, Dubai, London and a number of other markets.”
In late September, Mr. Kelleher announced the penthouse sale — to Ty Warner, founder of the company that makes Beanie Baby toys. Since then, “things have slowed down,” he said.
Mr. Kelleher estimates it will take about $1.75 billion to complete the Spire and says he has had conversations with numerous financial institutions, both in the United States and around the world, over the last 18 months. “There’s no financing available to build the Spire today,” said Mr. Kelleher. “It’s a matter of waiting. And that’s what the plan is.”
Specifically, Mr. Kelleher is waiting for next fall, when the city will learn whether it will be the site of the 2016 Olympics. “If Chicago lands the Olympics, it will certainly be a boost to the local economy,” Mr. Kelleher said.
Waterview Tower, on the other hand, had apparently secured a $400 million loan from the Chinese last summer to complete the project but that was allegedly withdrawn as the credit crisis deepened.
Many people have speculated on the fate of Waterview Tower with some believing that only the hotel portion will ever be built (as 26 stories are already constructed.)
Steven DeGraff, a lawyer who specializes in real estate workouts, says there are few good options in the current environment. “It may be cheaper to tear it down,” he said, “or it may be cheaper just to leave it in its current state.”
Meanwhile, even without the completion of these two buildings, as we’ve chattered about in recent months, condo inventory continues to grow downtown.
The city added 4,600 new condo units in the downtown area in 2008, with another 4,700 units scheduled to be completed this year. The rate at which these new units are being occupied is lagging, however.
“Absorption last year was terrible — probably around 1,000 units,” said Gail Lissner, vice president of the Chicago-based Appraisal Research Counselors, which tracks downtown condo sales. “It’s going to take some time to work through this inventory.”
The upside, she adds, is that only 500 new units are expected in 2010 and fewer than that in the following years. “Any project that is not out of the ground now is going to have a very difficult time getting financing,” she said.
Prices, meanwhile, are down anywhere from 5 to 25 percent, depending on location and amenities.
“The more generic, the more negotiable,” Mr. Kinney said. “If you want a two-bedroom two-bathroom plain-vanilla condo in downtown Chicago, I can get you a very good deal.”
Two Chicago Towers Fall Victim to Scarce Financing [Robert Sharoff, The New York Times, Feb 3, 2009]
The article says: “If you want a two-bedroom two-bathroom plain-vanilla condo in downtown Chicago, I can get you a very good deal.”
I wonder what a very good deal is right now.
Three interesting things:
1. “The [$40mm] — for the 10,000-square-foot penthouse — is the highest price ever paid for a condominium in downtown Chicago.”
Uh, that wasn’t paid. A contract was signed, by Ty didn’t cut anyone a check for $40mm, nor has he received a deed. If that counts as a sale, anyone want to top it by signing a contract for $50mm for the penthouse (200th floor, I promise!) in my prospective condo tower?
2. “Total condominium sales were estimated at $3.4 billion, against total costs of $2.3 billion.”
So, 30% of the net is profit, or a 50% return, depending on how you count. I think a lot of towers built recently had expectations like these, rather than the “traditional” 20% discussed recently.
3. “Mr. Kelleher estimates it will take about $1.75 billion to complete the Spire” and “So far, Mr. Kelleher has invested about $250 million in the Spire” and “total costs of $2.3 billion.”
That’s either a **huge** marketing budget or construction costs have come down a lot. Probably a bit of both.
1. “The [$40mm] — for the 10,000-square-foot penthouse — is the highest price ever paid for a condominium in downtown Chicago.”
Not anyone can just go and sign a contact. You need to make a 15% down payment, so Ty needed to write a check for $6 million. Not exactly chump change.
“Not anyone can just go and sign a contact. You need to make a 15% down payment, so Ty needed to write a check for $6 million. Not exactly chump change.”
I’m not saying it’s chump change; I’m saying it’s wrong to call it a “sale”.
BTW, I’m offering my $50mm (possible, future) penthouse for a $1 deposit. Anyone want to break the “record”?
anon,
Completely agree that it is not a sale. But it is a big commitment and not just signing a meaningless contract.
I realize it’s easy to play Monday morning QB, but even in 2006 I was scratching my head wondering about the feasibility of this project.
“it is a big commitment and not just signing a meaningless contract.”
Yep, but by calling it a “sale”, the author of the article is buying into realtor nonsense. Which is what should be banned, rather than any coverage of the “bad housing market”.
I wondered at the time if Ty had to put much down at all. Seems like they might have given him a pass in exchange for all the publicity his “purchase” generated.
CH, Speculation is easy to come up with, but the facts are that you are required to put down 15%. If you want to speculated maybe they are paying him a million dollars for the publicity of his purchase.
On another note, IMHO this project is dead…. realty has now set in, not many kool-aid drinkers left in the world.
“realty has now set in”
hahaha.
“you are required to put down 15%”
Required by whom (or what)? There isn’t a *legal* requirement, so what requires it? (note–I am not disputing that Ty posted a serious deposit; however a serious (nominal) deposit is a rounding error for him)
“you are required to put down 15%”.
This is what they had told me at the sales center in Chicago, additionally when I was a Cityscape in Dubai the sales associate their told me the same thing. Go and google this….. this is not speculation on my part. If you can find documentation to the contrary then lets see it.
valasko:
Like I said, just wanted to know how it was “required”. The answer is that the developer required it (for whatever reason). That’s fine.
It also makes it plausible (but, yes, unlikely) that they cut Ty a break on the amount to get the “sale”. It is reasonably likely that they made some consession to him for his $6mm–like a non-co-mingled escrow account with separate investment direction or something along those lines.
Anon I think we have exhausted this issue for today.
in the suntimes it was reported that a spokesperson for the developer could not disclose if ty put up the 15%.
so who knows.
CH agreed, I think we have all wasted enough energy on this topic in light of the fact that it will never get built.
I’m mixed on the demise of the Spire. On one hand I don’t want our city’s skyline to be exemplified by a giant adult toy looking device.
On the other hand this would’ve been awesome by its sheer height alone. One could only imagine how far out you could see something this tall. I’ve never witnessed a taller building firsthand than the Sears Tower and that can easily be seen 15 miles or more out.
Bob,
If you want to see a truely awesome building go to Dubai and see the Burj Dubai, very tall and slender. One warning- its probably the only thing worth seeing.
For eveybody’s information:
http://blog.redfin.com/chicago/2009/02/07/biggest_discounts_february_update/