Garrett Kelleher, once an aspiring tennis pro who dropped out of college, ran a painting contracting company in Chicago before returning to his native Ireland to start a development firm. While a solid, midsize operation, it hasn’t built a structure taller than 14 stories.
But in the next few weeks his audacious plan to erect North America’s tallest skyscraper — the 150-story, $1.5 billion Spire — will get under way, much to the amazement of some who know the 45-year-old developer and investor.
“I was surprised to hear he was involved in such a huge undertaking,” said Laurence McCabe, the former director of a Dublin real estate brokerage. “One wonders, is he out of his league?”
Alastair Adair, a professor of real estate at the University of Ulster in Jordanstown, Northern Ireland, calls the Spire “a big bet. He may be a speculator ahead of the curve or he may get himself into dire straits.”
Kelleher rode the Irish real estate boom, accumulating a personal fortune that is now worth about $1 billion, according to a May audit by Deloitte & Touche, which a Kelleher spokeswoman said he commissioned for investing purposes.
Now for the Spire, he will need to invest about $300 million in equity and shoulder the financing costs during four years of construction. By summer he will start construction, but so far he has no roster of buyers or their deposits as a cushion. Nor does he have the corporate or institutional partner that such projects usually require. He’ll also be developing in a weak housing market.
Nevertheless, he is undaunted.
“This will happen and it will be a success,” Kelleher declared in an interview. “I’m trying to do something special that’s never been done before.”
The building, designed by Zurich-based Santiago Calatrava, twists as it rises a third of a mile into the sky from its site where the Chicago River meets Lake Michigan.
Chicago is a big part of the draw, Kelleher said. “It’s 10 times less expensive than New York and a better place to live: safer, cleaner, culturally rich and attracting more and more high-end jobs. I lived there and know it.”
“In my view, at least half the units will be sold to foreigners,” he said. “Calatrava has a huge following globally.”
Kelleher has maintained a low profile, but that is changing as a result of the Spire project and his purchase of the St. Patrick’s Athletic Football Club, an Irish soccer team. He plans to renovate the team’s stadium, recruit top talent and start a youth academy to keep Irish soccer players at home.
The father of six, who lives in Dublin, has come a long way since growing up a dentist’s son.
In 1978, he first tasted life in the U.S. when for a year he attended California University in Pennsylvania on a tennis scholarship. “He was one of our little boys from Ireland,” recalled April Alfano, a school secretary.
“He liked to laugh, got along with the boys on the team, and his looks didn’t hurt with the girls,” she said. “Since his dad was a dentist, I assumed he was a little better off than some.”
Kelleher returned to Ireland and attended Trinity College Dublin from 1980 to 1983, but left before graduating. “Academia was not for me,” he said.
But he had always been fascinated by development for its dealmaking, financing and the people in construction, whom he called “down-to-earth, no-nonsense.” He began as a construction laborer in London.
“Regardless of the business cycle there’s always work. If people aren’t building new, they’re upgrading.”
A few years later, after living in New York, Kelleher landed in Chicago where he had one contact, the brother of an old college friend. He started a painting business. “I figured out how to estimate jobs; did a back porch here, one there,” he said.
Over a 10-year period the business grew as he took on painting maintenance contracts in the Loop. “I was a union contractor and eventually had a crew of about 120.”
He did a lot of work for Lewis Kostiner and his wife, Anne Neri Kostiner. The couple, owners of Annie Properties Inc., scoured the then-unhip West Loop and Bucktown neighborhoods for old industrial buildings to buy, renovate and rent as apartments.
“[Kostiner] renovated every unit with an attribute that made it a home,” Kelleher said. “He would spend extra to do high-quality finishes and install extra soundproofing for apartments in a neighborhood you couldn’t walk through at night. Lewis felt if you put in quality, people will always buy in.”
The Kostiners, Kelleher said, taught him the importance of strong relationships with lenders and subcontractors. Meeting deadlines was a Kelleher hallmark, even if it meant that he had to paint 16 hours a day, seven days a week, Anne Neri Kostiner said.
“He was personable but all business. His organization always ran smoothly.”
To be a profitable developer, she said, “You have to care about quality, be a risk-taker and have the vision to turn something old and boarded up into something beautiful. It’s also timing,” she added. “You have to get in on the edge of an upswing to have the opportunity for wide profit margins.”
Kelleher’s first attempt at developing came in 1989 when he paid $103,000 for a vacant brick-and-clapboard cottage that once housed a bakery and print shop at 1655 W. Cortland Ave., a half-block from the Kennedy Expressway, in Bucktown.
He put down $13,000 and took out a balloon mortgage loan for which the rate would rise precipitously after 18 months. He refurbished the building and then rented it to his own painting business. With the building improved and leased, Kelleher then secured a loan at a much better rate.
At that point Kelleher’s business had outgrown the building. So he renovated the building again, exposing a beamed, cathedral ceiling, and with two partners launched a 50-seat restaurant called Jane’s. The Trap Door Theater occupies space in the back. Over a five-year period Kelleher renovated old commercial properties for re-use as housing, offices and retail in the West Loop, Bucktown and the Elston Corridor.
“That was urban pioneering,” said Charles Huzenis, president of Jameson Realty Group, who also worked in those neighborhoods then. “Bucktown had dilapidated housing and a lot of gang activity. The West Loop was skid row. You didn’t know if the crime would continue, and no one knew if the buyers would come.”
By 1995, however, Kelleher had sold most of his Chicago property and returned to Ireland, where a real estate boom was gaining steam. “When I left Chicago, I had a substantial amount” of money, he said, declining to be more specific.
“His timing was impeccable,” said Sean Conlon, chairman of Chicago real estate brokerage Sussex & Reilly Inc.
Adair, the real estate professor, said Ireland’s boom hinged on changes in its tax code.
Since the mid-1980s, the Republic of Ireland has offered a low corporate tax rate, which has been a magnet for technology corporations, financial-services firms and companies eager to invest in roads, trains, airports and commercial ports.
In Dublin today, office buildings sell for about $2,000 a square foot, or about nine times what downtown Chicago buildings fetch. Since 1995, the average sale price of a house in Northern Ireland, which is part of the United Kingdom, rose sixfold, to $466,000.
Starting his own company
In 1995 Kelleher founded Shelbourne Development Ltd., based in Dublin where he began to buy tired 1960s and 1970s downtown buildings directly from sellers, bypassing brokers and saving on fees. He renovated, expanded and found new uses for them. He also bought up small pieces of land and assembled them into sites for new construction.
For one project, he bought 35 parcels from various owners for $6 million. Developed for an additional $44 million, the property is now valued at $165 million, Kelleher said.
Over the past decade Kelleher’s company has completed residential, office, hotel and retail projects in Ireland, England and other European countries valued at about $2.5 billion. The 50-person firm is now working on projects valued at about $6 billion, including the Spire, Kelleher said.
In Dublin, where buildings don’t rise much above 16 stories, Shelbourne’s tallest building is 14 stories. Last year, it completed construction of its largest project: the 800,000-square-foot Belgard Square, the equivalent of a 32-story office tower in space. Not all of Kelleher’s deals have succeeded.
Three years ago he placed a winning bid of about $500 million for the Lloyds of London building, which surprised and agitated the British. But Shelbourne pulled out after structural problems were found.
In Chicago, Kelleher seized on the opportunity to build the Spire as its original developer, Fordham Co., faltered in efforts to obtain financing.
To construct the world’s tallest residential tower is an engineering and management feat that few teams could accomplish, said Jeffrey Gouveia, executive vice president of Boston-based Suffolk Construction Co.
“When you get to this height, there’s serious pressure on a building from wind, and there’s the terrorism component,” he said. “For reinforcement, it requires significantly more steel that’s custom engineered.”
Few contractors have the expertise to build something as large or the management capacity to keep it on budget. “The Spire is one-of-a-kind project,” Gouveia said.
“Once you go above 65 stories, the challenges increase exponentially,” said John B. Hynes III, chief executive of New York-based Gale International, which in a joint venture is developing a $30 billion city in South Korea. “You can buy the talent, but the materials and manpower required doubles the cost from the basement to the top.”
Still, Kelleher is confident.
“In Chicago, we have the best global team,” he said of the nine companies involved in the project. They have “designed municipal buildings all over the world.” He acknowledges that the challenges will be considerable because of the height and planned innovations. “We want to install the world’s longest lift run, which is now in development, so residents can go from the ground floor directly to the top.”
Cost challenges abound
In the fall, Kelleher will begin marketing 1,200 superluxury condominiums with prices of at least $1,400 a square foot, which is more than triple the current average selling price of $400 a square foot. Demand for units priced over $1,350 a square foot, “is thin, uncharted territory,” said Gail Lissner, vice president of Appraisal Research Counselors in Chicago.
Then there’s Calatrava, who is famous for his designs but who has also had cost overruns on his projects.
For example, his iteration of the transportation center at the World Trade Center in New York is reportedly $1.2 billion over the $2.2 billion budget set four years ago. The Calatrava-designed addition to the Milwaukee Art Museum, estimated to cost $38 million in 1997, ballooned to $96.4 million by the time it opened in 2001.
“There’s two sides to every story,” Kelleher said. “I’m not concerned.”
By July he plans to start construction on the Spire before selling a single unit.
Indeed, from the summer of 2006, when he paid $64 million for the construction site, until winter, when an Anglo Irish Bank construction loan is likely to kick in, Kelleher will bear the entire cost of the project.
But he has a favorable foreign exchange rate on his side.
With one euro now worth $1.36, unit buyers and the developer himself can purchase 36 percent more than those dealing in dollars.
Will the Irish be among the buyers? They’ve grown accustomed to paying high prices for their homes, and commercial property prices have gotten so high that the Irish are seeking value elsewhere.
“The Irish diaspora has become the Irish buyaspora,” Adair quipped. Last year, Irish real estate investors poured $18 billion into property deals, mostly in Europe and on the East Coast of the United States.
“It’s a new era in which Irish developers are seeking a global profile by identifying opportunities to own iconic buildings,” Adair said. “Now the Irish are buying with a vengeance all over Europe, so probably some have an appetite for Chicago.”
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sdiesenhouse@tribune.com
