By Thomas A. Corfman
Tribune staff reporter
November 1, 2005
The ambitious plan would not affect the key architectural features of the 42-story Art Deco south tower, which is topped by a Moorish-styled dome, said Laurence Geller, chief executive of Strategic Hotel Capital Inc., which acquired the hotel about seven months ago. The 26-story north tower, notable for its blank concrete exterior along the avenue, was built as a separate hotel in 1961.
The proposal must receive city zoning approval. Construction, which would depend on sales of the high-priced condo units, is not expected to start until mid-2007 at the earliest.
The proposed skyscraper, to be designed by Chicago architect Lucien Lagrange, "adds an elegance" to the historic tower, without a "dwarfing factor," Geller said. "Truthfully, it would replace a building that is not particularly pleasing," he added.
Even so, the new tower is sure to prompt scrutiny by preservationists, concerned about the continued "canyonization" of North Michigan Avenue, and by some Streeterville neighbors, who already feel cramped from the building boom east of the hotel, including plans for two 2,000-foot skyscrapers in the last four months.
But the financial aspects of the plan also are expected to spark questions on Wall Street, even for a company known as an aggressive asset manager. While most hotel owners would only consider development plans for a poorly performing property, Chicago-based Strategic is proposing a redevelopment of a well-performing asset to make it better.
"Strategic is never shy about changing a property type to maximize value," said hotel analyst John Arabia with Newport Beach, Calif.-based Green Street Advisors Inc., who hadn't been briefed on the plan. "It would be a pretty big move."
Strategic paid about $170 million for an 85 percent interest in the 807-room property at 505 N. Michigan Ave. The hotel pulled in almost $6.4 million in the second quarter, accounting for nearly 17 percent of the real estate investment trust's earnings of $37.6 million before interest and other expenses, according to a financial statement. Room rates averaged about $193 a night during the quarter, and the hotel was more than 83 percent occupied.
The new tower would include 150 hotel suites, 310 condos, parking and 11,000 square feet of prime, first-floor retail space. It would replace a building with 477 rooms, reducing the overall number of rooms to 480.
The 330-room historic south tower would receive a $15 million renovation, a key part of a repositioning of the property.
"We're moving it from being a big, bulk group hotel, which is doing very well, into a luxury hotel that will compete against the top end of the market," Geller said.
Strategic, which is represented by prominent zoning attorney Jack Guthman of Shefsky & Froelich Ltd., is filing an application for a planned development Tuesday.
The plans also include construction of a landscaped plaza over a portion of Grand Avenue east of Michigan. And the hotel's entrance would be moved to Illinois Street to reduce congestion on Michigan, Geller said.
The proposed 850-foot tower would be almost twice the height of the historic south tower, which was built in 1929 as the Medinah Athletic Club and is known for its blend of design features inspired by sources that range from ancient Egypt to the Italian Renaissance.
Moreover, some of the city's best-known skyscrapers of that era, including the Wrigley Building, Tribune Tower and the McGraw-Hill Building, which was rebuilt in 2000, are within steps of the InterContinental, further highlighting the differences in height.
But key to the new development is the continued strength of the high-end condominium market, which is seemingly overcrowded with projects.
"I believe a building like this on Michigan Avenue is a unique opportunity that stands to segregate itself out from the bulk of the stuff that's being put out there," Geller said
Strategic, which is advised by Chicago-based U.S. Equities Realty Co., has already held talks with several local developers, including LR Development Co. and Magellan Development Group Ltd., he said.
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