Two New York developers that plan a 73-story residential tower on a vacant property across from Grant Park paid $17.2 million for the site, the latest in a series of deals that illustrate the real estate market's recent roller-coaster ride.
A joint venture between JK Equities and Time Equities bought the parcel at 1000 S. Michigan Ave. last month from First American Bank, Cook County property records show. The site has been on a wild trip over the past decade or so, with its value soaring during the condominium boom, crashing after the bustand heading back up as the residential market bounced back.
The sale also serves as a sobering reminder of the punishment the condo bust inflicted on banks. Even though the property has jumped in value, the $17.2 million price is well short of the $25.3 million First American said it was owed on the site back in 2010, after winning a foreclosure judgment against Chicago developer Warren Barr, who had planned a 40-story condo tower there.
Now, JK and Time are pushing an even bolder plan, hiring architect Helmut Jahn to design an 832-foot-tall condo-apartment building. The Chicago Plan Commission approved the proposal in April, and the City Council is expected to consider the project at its May 18 meeting, said Jerry Karlik, founder and principal of Port Washington, N.Y.-based JK.
The project, which has shrunk from the developers' original plan, is still in the design stage, and the developers need to pre-sell the condos and line up a construction loan before they can break ground. Lenders typically won't provide a loan for a large condo project unless a developer has contracts with buyers for half or more of the units.
“We took a little bit of a leap of faith on the market,” Karlik said. “We're confident we'll move forward.”
JK and Time still have to decide on the unit mix, but Karlik said the project will include somewhere around 300 condos and 150 apartments. They plan to open a sales center for the condos in first-quarter 2017, most likely in the Lightner Building, a property they own next door.
Amid a booming apartment market, developers have been able to take their pick of lenders willing to finance a new downtown rental tower. Scoring financing for hundreds of condos isn't as easy.
“We think the market is there, but we have to convince the lenders that the market is there,” Karlik said. “Lenders are wary. We've got to prove our case.”
Plenty of developers and lenders got burned by the condo bust, including Barr and First American. A Barr venture bought 1000 S. Michigan in 2005 for $48.3 million—nearly three times the most recent sale price—financing the acquisition with a First American loan, according to county records.
But the market plunged before Barr could break ground, and Elk Grove Village-based First American filed to foreclose on the property in May 2008. Then, in 2010, First American took over the parcel through an auction that valued the site at just $11.3 million.
Rick Levin, president of Chicago-based Rick Levin & Associates, who conducted the 2010 auction, also brokered the recent sale to JK and Time for First American.
By holding onto the property, First American recovered some but not all of the money it lost on the loan. Chairman Thomas Wells said the bank is glad to have the site off its books—“Our business is lending money, not taking back properties,” he said—but predicted a better outcome for the current plan.
“It will be an exciting development,” Wells said.