Mega South Loop Development

3,000 housing units, hotel on drawing board for vacant riverside site

Two Chicago developers aim to build as many as 3,000 homes, a hotel, stores and a marina along the Chicago River just south of downtown, transforming an 8-acre tract that has sat empty for 36 years into a densely packed urban neighborhood.

Estimated to cost $1.6 billion, the 3.5-million-square-foot project four blocks south of the Sears Tower would mark a big step forward in the South Loop's residential renaissance and bring life to a dead stretch of the Chicago River. Sources say the developers, Rokas International Inc. and Frankel & Giles, have agreed to pay about $55 million for the parcel, which, like Block 37 in the central Loop, has stubbornly resisted development.

"That site is a gaping hole," says architect Dirk Lohan of Chicago-based Lohan Anderson, who did planning work there in the early 1990s.

The question is whether Rokas and Frankel & Giles can succeed where others have failed. It's unclear whether the city will grant them the zoning change they need to build such a dense project, which would jam into the site about a million square feet more than current zoning allows. The developers, who decline to comment, also plan to ask the city for about $25 million in tax-increment financing to help pay for a riverwalk and other infrastructure, a source says.

Another challenge: the slumping condo market, which could make financing the development difficult.

Designed by Adrian Smith & Gordon Gill Architecture, the project would include as many as eight buildings — one exceeding 80 stories — and about 125,000 square feet of retail space. The residential component would be a mix of condos, apartments and senior housing. A hotel, with as many as 500 rooms, and a 40-slip marina would round out the complex.

With its riverside location and proximity to downtown and public transit, "it's a great piece of real estate," says Peter Dumon, president of Harp Group Inc., an Oakbrook Terrace-based development firm that has reviewed the latest proposal for the property.

Yet he declined an offer to develop the hotel in the project, noting that hotel guests are unlikely to venture south of the Congress Expressway. Harp instead is considering buying development rights for an apartment tower on the site.

Known as Franklin Point, the property is the former site of Grand Central Station, a rail terminal demolished in 1971. The developers have signed contracts to buy the tract from Jacksonville, Fla.-based railroad company CSX Corp., which owns 6 acres of the site, and D2 Realty Services Inc., which owns about 2 acres. CSX did not return calls. David Kleiman, a D2 principal, declined to discuss terms.

SEEKING APPROVAL

The developers are negotiating with city officials over rezoning the property and will also need support from neighborhood groups and Alderman Bob Fioretti (2nd).

Then there's the challenge of selling enough condos to land a loan for the project. The condo glut could ease by then, but the supply of unsold units downtown reached 6,507 at the end of the first quarter, up 62% from a year earlier, according to Chicago-based consultancy Appraisal Research Counselors.

Founded in 2000 by Lithuanian immigrant Andrius Augunas, Rokas has developed several smaller condominium projects in the South Loop but nothing on the scale of Franklin Point. Frankel & Giles, which also specializes in the South Loop, has a longer résumé, including a 274-unit condo tower at Prairie Avenue and 18th Street.

If it comes to fruition, the Franklin Point project would anchor and enliven the western edge of the South Loop, where residential development has been slow to take off. D2 Realty proposed a less-dense project there than the current proposal but dropped the plan about two years ago amid an impasse in talks with the city. In the early 1990s, Harris Bancorp Inc. scratched plans to build a back-office building on the site.

"It's kind of like Block 37," says Mr. Kleiman, referring to the central Loop parcel that is finally being developed after a 15-year delay. "Hopefully, this will be the time."

©2007 by Crain Communications Inc.