Posted on: July 01, 2007

Mixed-Use Monster

Hotel rooms, offices, shops, condominiums, and rental apartments will share a single 82-story tower on Chicago’s lakefront.

By Bendix Anderson

Chicago—The developers and designers building Aqua, the latest tower at Lakeshore East, a $4 billion city-within-a-city just north of the Loop, spent a lot of time drawing charts and maps of how people might move through the spaces they’re building. Thick, shaggy lines showed the traffic from elevator banks, through the project’s six-acre park, and up and down sidewalks past retail spaces.

That’s what you have to do when hotel rooms, condominiums, shops, and offices are all built on top of each other, according to David Carlins, president of Magellan Development Group, Lakeshore East’s developer.

Lakeshore East has more than enough space on its 28-acre site to separate uses. The original plans for Aqua’s 1.9-acre site called for one rental apartment tower and a separate condominium tower, each about half as tall as the Aqua spire.

“If you put them on top of each other, you have a significantly more open space,” Carlins said. Together the apartments and the condominiums share more than 100,000 square feet of amenities, including an 80,000-square-foot roof deck with gardens, fire pits, grills, and a hot tub. Magellan’s marketing experts were a little concerned at first that condominium owners might not want to share the deck with renters—but the condominiums at Aqua have been selling surprisingly well, Carlins said.

The combined building also makes a stronger architectural statement and offers better views. “You’re starting your first condo on the 52nd floor,” Carlins said. Even though it probably cost 10 percent more to build the single tall building than the two shorter ones, that cost is being paid for by condominium buyers eager for the view and the rooftop garden, Carlins said.

It all sounds suspiciously like the “Tower in the Park,” the old dream of Modernist architects packing city dwellers into skyscrapers rising up around open spaces. Many public housing projects were built on this model, with little street-level retail and little traffic on their lonely, sometimes unsafe, sidewalks.

Aqua solves the problem: The first three floors of the building fill the block and come right up to the sidewalk with more than 35,000 square feet of soon-to-be-bustling retail space. Shops and restaurants have already claimed about half of this space. On the east side of the building, facing Lake Shore East’s six-acre park, Magellan also is building seven townhouses, since that side of the building may not have enough foot traffic passing by to support retail.

The first three floors also include another 37,000 square feet for Magellan’s new offices. The roof deck lies on top of the third floor, with the rest of the tower rising above.

To make this deal even more complicated, Strategic Hotels & Resorts has agreed to pay $82.4 million for 15 floors of the development as soon as the floors are ready to be finished out as a hotel with its own lobby.

Mixed-use financing made easy

It’s a cliché that mixed-use buildings are difficult to finance. But Magellan’s lenders actually seemed reassured by the mix of uses at Aqua, Carlins said.

That’s because some users of the space, like the hotel, have already committed to pay for their part of the building. The condominiums provide even more security for Aqua’s lenders, despite Chicago’s softening condominium market: Since last fall, 85 percent of the 263 condominiums have already pre-sold at prices averaging $520 per square foot and ranging from $350,000 to more than $1 million per unit. These buyers all made 10 percent down payments.

“We were a little surprised at the velocity,” Carlins said. If sales continue at these prices, Aqua’s 390,000 square feet of condominium space should bring in $202.8 million. That combined with the $82.4 million from the sale of the hotel space will go a long way to pay off Aqua’s construction loans.

Magellan took out a $441 million package of construction loans, which will cover 93 percent of the total development cost of the $475 million project. A group of three banks—National City Corp., LaSalle Bank Corp., and EuroHypo Bank—provided Aqua’s $404 million primary construction loan and $19 million in mezzanine financing. Magellan did not disclose the interest rate for the five-year primary loan, though a free collar, an interest-rate hedge, should keep the floating rate between 4 percent and 6 percent.

It might have been simpler to use just one bank for the loan, but Magellan wanted to maintain its relationships with all three lenders, which had offered similar terms for the loan. Lehman Brothers, Inc. provided another $18 million in mezzanine financing.

When the building is finished in 2009, Magellan will still own the apartment, retail, office, and parking spaces. The developer plans to take out roughly $170 million in permanent financing, underwritten by apartment rents averaging $2.60 per square foot.

Shops and restaurants have already written letters of intent for about half of Aqua’s retail spaces, which will total more than 40,000 square feet, including both the street-level stores and another 6,000 square feet of shops on the project’s underground pedestrian crossings. Retailers are paying $65 per square foot for space on the sidewalk level, much higher than the $48 Magellan was expecting.

The skyscraper as sculpture

Aqua will also be an 82-story sculpture. The balconies swell out from the sides of the building and then taper back. Seen from below, these thin fins of concrete give the simple blue glass rectangle of the skyscraper a complicated, warped form.

The building “transforms as one moves farther away,” said architect Jeanne Gang of Studio Gang Architects. Her design will provide usable balconies to four out of every five of the apartments at Aqua. Since those residents will pay extra for the balconies, the complicated shapes added little to the cost of construction—just a little extra labor and material to block out the curves, Carlins said.