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Originally Posted by Cro Burnham
Reviewing the posted articles, my sense is that the play being made here by these various investor groups is for control of the site (brilliant insight, right?) and whether that is worth $135 million or whatever. My guess is the appraisal is relating the value of the most feasible use for the site and whatever existing site work has been completed. It's amazing, Chicago is one of only a two or three cities in North America where a slightly improved site could fetch $135 million.
But it is doubtful the appraisal is related to potential build-out of a 2000 foot condo tower. The likelihood is that that is not the optimal use of the site at this point simply because Kelleher conceived of that idea at the height of once-every-seventy-years financing bubble.
If willing to acquire control of the site at $135 million +/-, an investor obviously believes alot of big Chicago-style stuff can be built profitably there. It does not mean specifically the Spire as originally conceived, obviously. I imagine the new controlling investors will clear the slate and consider the optimal development approach: possibly, but not necessarily, the Spire.
I don't think the "elite proposal" factor Onn suggests above has any bearing on the calculated decisions of cold-eyed Wall Street opportunists.
I'd also guess that Kelleher will be kicked to the curb as soon as possible by whoever gains control of the site.
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Kelleher is seeking control of the site, not various investors. Now Kelleher and the investors will have a deal to make of course, the investors are going to want money back. However getting that money back could be 5 or 10 years down the line, investors think long term. They're not thinking about the foreseeable future, and they know Kelleher will have plenty of time to complete the project within whatever time frame they hammer out.
The site is likely worth more than $135 million (in fact Shelbourne said they really only needed $125 million, the agreement with Atlas includes another $10 million, probably for future costs). The site is likely worth more than its current price because it is a very unique waterfront site with construction already done on it. Second Related got the site at a rock bottom price because of the bankruptcy. It's likely worth over $200 million, so even if Kelleher is out of bankruptcy but still can't complete the Spire project in a number of years from now and has to sell the site...he would likely still have enough to pay off the investors some time from now. Worst case scenario.
I think the Spire will be built as originally conceived. Three big reasons for this!
1.) The global million/billionaire market Kelleher seeks to buy/rent units in the Spire does in fact exist. Right now because of a weak global economy their willing to invest in property in US cities. This includes property investors from the US, Europe, Russia, The Middles East, Latin America, and China. The first time the Spire went on the market it sold over 300 units in a short period of time, what crashed the project was the worst financial crisis since the Great Depression, one particularly focused on property. Not happening this time. Just like in projects in New York City, global high-end investors will have a prime interest in the Spire project when asked. They know investments in the building would be good even before it is built, Chicago has a strong strengthening real estate market.
2.) Just as important (perhaps more important) is that Kelleher has partnered with Atlas this time around, which is actually a Chicago based real estate company. This was a smart move on Kelleher's part in my opinion. Atlas has apparently done multiple high-rise projects in Chicago and the South Loop, according to the Chicago Tribune. Because they're from Chicago, already taking on multiple projects, they know the lay of the land probably better than Shelbourne from Ireland does. They know what kind of investors or bankers would be interested in funding in Chicago, where to get the investors for the Spire. They know how to market the project to both locals and international buyers. They know what kind advertising to put together and pricing for the units. This is one of the reasons I think Kelleher has an even better chance of building the project than back in 2008. From a Chicago perspective Atlas has the potential to get this done.
3.) Chicago has a substantial luxury real estate market. Maybe not on the level of New York City, but the demand is there from both national and international buyers. Right now there is only a limited number of luxury residential spaces available in the city. Yes the Spire is a big project, the city should be able to absorb the space though. The downtown area of Chicago grew like leaps and bounds during the 2000s, that expansion will continue as time goes on. The Spire may seem a little overkill right now, it might not a decade from now. That gives funders incentive because they know the units in the Spire will be bought or filled eventually. Also, because 500 of the units are being rented with the Atlas deal, they don't even have to worry about those right now. They can rent those out at a lower rate than the rest of the tower, then gradually raise rents over time. Eventually some of those renters may want to buy their units.
I don't think its inconceivable that the project will be built at all. There's not much holding it down once they get past the legal issue. I think someone will put up financing for it. Some of it may come from an international lender, but Chicago is a global city. I would expect that. Things may not take off right away but the process is already moving faster than some people expected.
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