(From Crain’s Chicago Business) — Bucktown’s busiest intersection may be getting a whole lot busier.
A local group is vying to transform the neighborhood’s tallest building, the 12-story Northwest Tower at 1600 N. Milwaukee Ave., into a boutique hotel. Across the street, the former Midwest Bank property is being redeveloped into retail space anchored by a Walgreens and a Caribou Coffee shop.
Just west of the well-known six corners intersection, where Milwaukee, North and Damen avenues converge, a restaurant with concert and event space is planned at a former auto body shop along North Avenue, while a new health club also is in the works.
The flurry of development activity demonstrates the desirability of urban retail markets at a time when other regions continue to struggle.
“It’s the closest thing you have to a downtown-type area on the North Side,” Paul Sajovec, chief of staff for Alderman Scott Waguespack (32nd), says of the ward’s bustling intersection.
A joint venture of Donald Wilson, head of trading firm DRW Holdings LLC, and Chicago-based hotel developer AJ Capital Partners recently bought the note on the distressed Northwest Tower through a complicated deal involving two banks and two separate mortgages. The venture is expected to negotiate to take control of the tower from developer Krzysztof Karbowski, who faces foreclosure and has personal guarantees on the loans.
Mr. Wilson did not return a phone call, and AJ Capital CEO Ben Weprin declines to comment. Three years ago Mr. Karbowski proposed a 90-room hotel for the site, which is wedged between Milwaukee and Damen near a Blue Line el stop.
“It’s the trophy property in Bucktown that was at one time zoned for a boutique hotel,” says Keith Lord, president of Chicago-based Lord Financial Advisors LLC, whose debt-sale business sold the notes to the new venture.
A hotel would add a new element to the expanding retail scene in trendy Bucktown and Wicker Park neighborhoods.
“What’s terrific about the six corners intersection is that you’re drawing from a lot of income levels,” says Joe Seigle, a principal at JFS Realty Capital who is one of the developers of the restaurant and event space.
AJ Capital, which has hotels in the United States, Mexico and the Caribbean, also is redeveloping another 12-story distressed building. The firm is converting the former Days Inn at 1816 N. Clark St. in Lincoln Park into a boutique hotel expected to open early next year.
Buying the Northwest Tower notes was complicated by the financial woes of Mr. Karbowski. He faced a $4.5-million foreclosure suit from Harris Bank N.A. for a mortgage on the top 11 floors. Meanwhile, Mr. Karbowski’s Time Properties Inc. — which had a mortgage on the first floor from Chicago-based Lakeside Bank — filed for bankruptcy protection. Mr. Karbowski did not respond to messages.
Mr. Waguespack’s office had not immediately been approached by the Wilson-AJ Capital venture regarding a hotel project there. But Mr. Sajovec says the site has drawn inquiries from many prospective hotel developers in recent years.
“People definitely are interested in it,” Mr. Sajovec says. “It would have a lot of positive synergy with the surrounding retail in the area.”
Despite the 1929 building’s upside as a hotel, the project won’t be easy, even after the venture negotiates with Mr. Karbowski.
People familiar with the property say the Art Deco building’s interior has small rooms that are poorly suited for a modern hotel. While retrofitting the interior, the developers probably will be required to preserve the historic look of the exterior, such as the facade and window work.
Mr. Karbowski’s proposal encountered community opposition. The alderman’s office opposed a zoning permit for the hotel in 2008 because of a lack of specifics from Mr. Karbowski, who had never developed a hotel. Mr. Sajovec says concerns mainly stemmed from a “lack of sophistication” in the planning, such as suggesting that an existing Sprint phone store remain on the ground floor of a hotel.
A zoning permit was granted in October 2008 with the condition that it would expire in three years. But Mr. Karbowski’s project, estimated to cost $15 million, never got beyond the planning stages. Today, the building’s occupants are the Sprint store and some office tenants, all on short-term leases.
In taking on two redevelopments at one of the most high-profile intersections in the city, Mr. Wilson continues to make his mark in real estate with opportunistic moves on financially failing properties.
A separate venture of Mr. Wilson is redeveloping the former Midwest Bank property at 1601 N. Milwaukee Ave., which was acquired through a deed-in-lieu of foreclosure deal last summer.
Walgreens will open a drugstore in the 15,500-square-foot two-story former bank building. The developers gained approval from the city to replace the building’s dark windows with clear ones that show off the ornate ceiling, says David Nelson, senior portfolio manager at DRW.
In the bank’s former parking lot at 1611 N. Milwaukee Ave., AT&T and Caribou Coffee have signed leases for a new structure with about 11,000 square feet of retail space. Mr. Nelson says both retailers are building out their stores and that two spaces remain available.
Mr. Wilson’s venture bought the property’s $13.2-million loan from PrivateBank & Trust Co. for an unknown amount, then took control through a deed-in-lieu of foreclosure from the previous owner, a venture led by Jon Goldman of CG Development Group LLC, which acquired the property for $18.4 million in 2008.
At 2040 W. North Ave., a venture led by Marc Realty principal Larry Weiner is planning a health club that would be its sixth location. The venture, Chicago Athletic Clubs LLC, has clubs in Evanston, Lincoln Park, the West Loop, Lakeview and Lincoln Square.
Mr. Weiner bought the Bucktown property last September for $2.6 million and is working to finalize city approval for his plans.
At 2033-35 W. North Ave., on the opposite side of the street in Wicker Park, Mr. Seigle and Nick Moretti are redeveloping a 9,300-square-foot former auto body garage into a Chicago Chop Shop restaurant with 5,000 square feet of event space in the back. They spent nearly $1 million to close on the two-story, 1913 building in July and plan to begin a gut rehab in September.
The Chicago Chop Shop will occupy the storefront space, serving deli sandwiches in the daytime and small-plate dinners at night. Venue, the name of the event space, will be available for concerts, art shows and other events. There will be at least 400 seats, the developers say.
“The demographics of the neighborhood make it ideal for a flexible space that can be used by a lot of different people,” says Mr. Moretti, a vice-president of leasing and retail development at Chicago-based First American Properties Inc.