September 26, 2007
Big Projects May be Pulled Back to Earth
High-end residential developments in Chicago and around the country feel the squeeze as lenders turn cautious in global credit crunch
The developer of the proposed Chicago Spire will host a preview and party for the global press Wednesday, but the celebratory mood could be dampened by the worldwide credit crunch and a postponement of the tower's preconstruction sales.
"If I didn't think I could deliver, I'd have a good excuse to pull out, but I'm not doing that," said Garrett Kelleher, who two weeks ago delayed the launch of sales from this week to Jan. 13, citing the complexity of the documents that must be filed with federal regulators. "I'm building an iconic building, using our own resources and doing exactly what I'd said I'd do."
Certainly, people with grand visions often can overcome adversity, but the preview of the $1.5 billion, 150-story building, slated to be the tallest in the U.S. and the highest residential tower in the world, comes at a tough time for high-end residential developments in Chicago and around the country.
U.S. residential developers must grapple with turmoil in their industry and in financial markets. In many places across the country, property sales and prices are falling, homeowner foreclosures and lenders' losses are rising, and deals are falling out of contract.
In response, developers are changing course. Some are delaying the start of sales or construction. Others are selling land, relinquishing development options or investing more equity into projects to meet increasingly stringent financing requirements.
Meanwhile, real estate buyers and investors in Chicago, around the nation and in Europe, where Kelleher plans to sell more than half the Spire units, wonder what property is really worth and if it will appreciate.
"The whole world is spooked," he said. "They're aware of the malaise potentially hanging over the U.S. investment market, but Chicago is steadier than Miami and a huge market." Equally as important for the financial future of the project, he said, is that "the euro has a lot of buying power."
Spire developer Kelleher isn't worried about selling enough units at $750,000 to $10 million to get financing when the time comes.
"There's pent-up demand all over the world," he said.