Developer Nicholas Gouletas is set to convert another premier apartment building, this time before the tenants even move in.
The chairman of Chicago-based real estate firm American Invsco Corp. has a deal to buy The Sterling, a 50-story, 389-unit apartment building that is under construction on the southeast corner of LaSalle and Kinzie Streets, sources said. The price is between $110 million and $115 million, which likely includes the rights for prospective condo owners to park their cars in the adjacent 615-car garage but does not include ownership of the garage. Also not included: about 36,000 square feet of retail space.
In the surging downtown residential market, condo converters have frequently outbid long-term investors for premier existing apartment properties. But this is the first time in recent years that converters have targeted apartment buildings while they were still under construction.
The Sterling, which is expected to be completed in November, is being developed by Royal Imperial Group Inc., a low-profile, Chicago-based real estate company, with a high-profile investment partner, Peabody Global Real Estate Partners.
Peabody is a $830 million fund managed by two New York firms: J.P. Morgan Chase & Co. and the O’Connor Group, a high-powered real estate firm.
Executives with Royal Imperial and American Invsco would not comment.
But Gouletas believes that by buying the project now, he can avoid many of the risks of new development, such as rising construction costs, sources said.
The success of the deal is likely to depend on a quick sellout. And Gouletas is said to be encouraged by several recent projects. At Millennium Centre, a high-rise under construction in River North, for example, American Invsco has contracts for half of the proposed building’s 341 units.
But unlike a condo conversion, Gouletas won’t have existing residents as prospective buyers, a group that usually makes up about 25 percent of the purchasers in a conversion, said residential marketing consultant Garry Benson, a partner with Chicago-based Garrison Partners.
Coming down: A vacant 18-story building at 7 S. Dearborn St. will be demolished, but not to make way for the world’s tallest building that once was proposed for the property.
Developer Scott Toberman had plans for a 108-story building on the site, but last year was forced to hand the deed back to his lender, Banque Worms Capital Corp., a New York subsidiary of a Paris bank.
The bank then hired New York-based real estate firm Julien J. Studley Inc. to sell the site, drawing strong interest from at least three prospective buyers. That is until the City of Chicago cited the property for building code violations and filed suit in October.
Spending up to $1 million to repair a building destined to be torn down anyway made little sense, and uncertainty about the cost of demolition made it difficult to make a deal with potential buyers. So the bank has decided to proceed with demolition, which is likely to cost as much as $3 million, sources said.
The bank’s attorneys, Chicago-based law firm Schwartz Cooper Greenberger & Krauss, would not comment.
Retail vacancies rise: The vacancy rate for retail real estate in the Chicago area inched up to 8.2 percent during the fourth quarter, compared with 7.8 percent during the same period in 1999, according to a market study by CB Richard Ellis Inc.
Vacancy rates had been on a downward path since the first quarter of 1997, when a glut of new space pushed up the rate to 10.2 percent. During the first quarter of 2000, the rate hit a 10-year low of 7.3 percent before climbing.
The CB Richard Ellis survey includes community shopping centers, strip centers and single-tenant, freestanding stores.
But development is slowing down, said Todd M. Caruso, a managing director with CB Richard Ellis.
“A lot of retailers just want to hang out for a while,” he said. “It’s very easy to put things on hold for six months and then see where we are.”
