Feb. 20, 2013--McCormick Place officials, along with Mayor Rahm Emanuel and Gov. Pat Quinn, announced plans early Tuesday to acquire land and build a second hotel neighboring the convention center. But the property owner later said there was no deal -- presenting Chicago and Illinois with a potentially significant hurdle.

The Metropolitan Pier and Exposition Authority, the state-city agency that owns McCormick Place, said it is acquiring a site for a 1,200-room convention hotel, which it estimates would cost $400 million to build by late 2016. The hotel would be immediately west of the convention center's newest facility, the West Building, with a skywalk connecting the two.

But JRM Technology, the site's owner, already has invested thousands of man-hours and millions of dollars to develop a $400 million data center there, James R. McHugh, principal of the company, said in a statement Tuesday.

"That plan has already received City Council approval and we would start construction as soon as a building permit is issued," said McHugh, who also is co-owner of McHugh Construction Co.

Though the authority, known as McPier, "approached us about an alternative location for this project, we considered those conversations to be very preliminary and no agreement has been reached," McHugh said. "It is our hope that the issue can be resolved in a way that improves the ongoing redevelopment of the South Loop."

Just what led to the crossed signals is unclear, but the hotel announcement is one more indicator of growing interest in bringing hotels, restaurants and entertainment to the long-dormant area.

Separate parcels just north of the West Building are moving toward auction this spring after their longtime owners lost them in foreclosure. Those sites have been viewed as potential locations for more hotels and entertainment, and possibly an arena for DePaul University's Blue Demons basketball team.

Meanwhile, private developers have floated a range of proposals to bring music clubs, boutique hotels, theaters and restaurants to Motor Row, the dilapidated historic commercial strip west of the convention complex.

McPier's top executive expressed optimism Tuesday that talks with JRM Technology would lead to a deal. "If for some reason it doesn't, the city is prepared to use its eminent domain power," McPier CEO Jim Reilly said. "But we hope we won't have to do that."

An eminent domain lawsuit can be costly and drawn-out. McPier took that route in attempting to acquire a different parcel for hotel development several years ago, but it ultimately withdrew the effort during the economic downturn.

Chicago Deputy Mayor Steve Koch said the latest hotel project is moving forward.

"We are in active negotiations with McHugh and there are a number of options that will allow both the data center and world-class hotel to be built," he said in a written statement. "However, the city will pursue every available option to ensure that the hotel is built, and brings with it essential redevelopment around McCormick Place."

Reilly declined to comment on the potential land cost but said it would be a fraction of the construction cost. McPier and the site owners are discussing the possibility of a land swap, in which McPier would trade some land it owns on a nearby block.

McPier's latest hotel proposal would not prevent other hotels from being developed nearby, he said, noting a 2009 study found potential demand for up to 8,000 hotel rooms in the area.

"I don't see this as competing (with other projects)," he said. "This will give us 2,400 rooms, and we could easily use more than 2,400 rooms."

McPier owns the 800-room Hyatt Regency McCormick Place, which is undergoing a 460-room expansion due to be completed this summer at a cost of nearly $90 million.

The latest project, which would be located between Indiana and Michigan avenues, along the south side of Cermak Road, would stimulate the local economy and make the city more competitive in the race for trade shows, Emanuel and Quinn said in a written announcement.

The existing Hyatt is a significant income-producer for McPier. A financial forecast produced last year estimated operating income of $13.3 million in this fiscal year and $27.3 million in the next year, when the additional tower will be open. McPier expects a second hotel will generate additional income, which it said it would use to market the city.

McPier will immediately seek proposals from design/build teams, hotel operators and financial advisers and underwriters, Reilly said. Construction should begin in the last quarter of 2014.

As it did with its first hotel, McPier intends to finance the project in the construction phase through revenue bonds that would be paid back by hotel operating proceeds. At a later stage, it may add more financing through its expansion project debt structure, in which bonds are paid back with tourism taxes.

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