Invest $1 million in the twisting, 2,000-foot-tall tower, called Fordham Spire, and get back a whopping return of between 35 percent and 45 percent, the Chicago developer says.

The astronomical returns are based on an average condo selling price of more than $1,000 a square foot, a feat that no developer has achieved in Chicago, including flashy New Yorker Donald Trump.

An inside glimpse into the deal reveals not only the huge potential profit to be reaped by Carley and his financial backers but also highlights the formidable risks that lie ahead: skyrocketing construction costs, rising interest rates and uncertainty about the demand for the ritzy condos and high-priced hotel rooms.

A close examination of the proposal also shows how key aspects of the deal have evolved in response to changing market conditions. To gauge those modifications, the Tribune obtained a summary of the project given to prospective investors last fall and compared it with information that Carley provided during interviews.

The developer declined to comment on some aspects of his current proposal, which the Tribune estimated using real estate industry standards and information from the earlier proposal.

To be located along the north bank of the Chicago River on the west side of Lake Shore Drive, the building is estimated to cost $567 million.

If the $1,000-a-square-foot selling price seems steep, prices for the hotel-condo rooms will be even higher, Carley said. Under the hotel-condo concept, rooms are sold as condominiums to private buyers, who allow the hotel operator to rent them out when the owners are not using them. The skyscraper would include as many as 300 luxury condominium units and 150 swank hotel rooms.

Reaching these lofty prices may depend on whether the downtown condo market is returning to "normalcy" after a frenzied phase driven by extremely low interest rates and speculative buying.

"In what environment are you establishing the $1,000-a-foot average?" said Tracy Cross, president of the Schaumburg residential consulting firm that bears his name. "If it's an environment of normalcy, that market doesn't exist."

Yet Carley, citing the results at rival projects and the pattern of downtown condo price increases since 2001, said he expects his project could average $1,100 a square foot.

The market leader in price is the Trump International Hotel and Tower, which last summer was said to have reached an average price of $750 a foot after selling about three-quarters of its units. More recently, Trump's prices have hit $1,000 a square foot, enticing Carley and other developers.

But most luxury condominium high-rise developments are priced between $500 and $600 a square foot, although several projects have achieved higher prices on selective units.

"Is development going to slow down in the next year or two because rates go up?" Carley said. "Rates, in my lifetime, are the lowest ever."

Carley said he is increasing the number of units by making some of the them smaller and by cutting the retail space to 5,000 square feet from the 50,000 square feet originally proposed. And although a deal with broadcasters is far from certain, antennae could add annual revenue of between $7.5 million and $10 million, at a cost of roughly one year's revenue, he said.

Yet Fordham Spire must achieve those unprecedented prices to cover escalating construction costs, which the developer said are approaching $300 a square foot, including "a lot of big contingencies."

In the fall, Carley told investors that construction of the nearly 1.2 million-square-foot structure would cost about $221 a square foot, or $264.2 million, including contingencies. Carley, chairman of Chicago-based Fordham Co., declined to comment on the earlier cost estimate, which sources said was overly optimistic.

But even $300 a foot may not be enough to cover construction, given the tower's unique design and tremendous height, some experts said.

"If someone were to tell me that building was $350 to $450 a square foot, I would believe that number, based on other projects that I know," said Ron Klemencic, chairman of the Council on Tall Buildings and Urban Habitat.

"As buildings go to 1,500 feet or 2,000 feet, the costs go up dramatically," said Klemencic, president of Seattle engineering firm Magnusson Klemencic Associates Inc.

A lot of leverage

To achieve exponential financial returns, Carley is relying on a high degree of leverage, or borrowing. Under one scenario, equity investors, including the developer himself, would invest about $50 million.

He said he has tentative agreements for that investment, which he called "huge" because that portion of the financing is usually the most difficult to raise.

Equity investors face the biggest risk of being wiped out if something goes wrong, but the biggest profit if things go right.

The payoff on that investment is projected to be between 35 percent to 45 percent, he said, using a profitability measure called the "internal rate of return" that factors in the length of time the deal would take. Less audacious, but more realistic, developments might aim for a return between 18 percent and 22 percent, experts said.

Investors have been slow buying into Carley's starry-eyed vision of condos in the sky, with an average price of more than $2 million.

"It's not like buying T-bills," he said.

Nonetheless, the $50 million equity stake, when combined with a $120 million mezzanine loan, would account for about 30 percent of the project's cost, said Carley. If so, the total project cost is estimated at $567 million, leaving Carley to obtain a construction loan of about $397 million. He declined to comment on the size of the construction loan or the project's total cost.

A mezzanine loan is a kind of second mortgage, typically made by opportunistic investors who charge higher interest rates than banks because they take more risks.

The financial structure of the deal still could vary. Carley said he is in negotiations with several financial institutions and investment firms. As an alternative, he said, he also is in talks with a "major national development" firm about participating in the project.

Late March deadline

The contract to buy the site, for the lofty price of about $64 million, originally required that he close on the purchase in late March, but he has obtained an extension for an unspecified period.

Now, Carley expects to announce financing next month, with construction to start in early 2007.

If he doesn't work out the financing details soon, Carley said he could obtain a short-term loan to purchase the site and start a marketing blitz, including the construction of a $1 million sales center.

Yet, in an era when investors and lenders are targeting large amounts of money for real estate, discussions about financing new developments also are at an all-time high.

"Everybody with capital is saying, `Show me your deal,' and smart developers are saying, `Show me the money,'" said Bruce Cohen, chief executive of Chicago investment firm Wrightwood Capital. "But at the end of the day, most of these deals aren't being capitalized."