The Alter Group, a pioneer in corporate real estate development, is planning its most ambitious project to date. The Skokie, Ill.-based company has signed a contract to buy a 3.7-acre, $70 million parcel of land adjacent to Chicago's sprawling McCormick Place, one of the nation's choicest convention spots. Company officials propose to build a 1,500-room hotel that could cost at least $500 million.

The hotel could occupy two 21-story towers and offer 100,000 sq. ft. of meeting and ballroom space, but its design has not yet been decided and the land sale has not yet closed, says Matthew Ward, Alter senior vice president.

“We're very serious about it,” says Michael Alter, company president. “We're committed to doing everything we can to try and make it work.” The company is conducting due diligence at the site, but by late February had not yet talked with lenders, since it still had not determined the scope of the project.

“As I understand, the Alter Group will be directly adjacent to the exhibition space,” at McCormick Place, which would give the developer a distinct advantage, says Dennis Vicchiarelli, deputy executive director of World Business Chicago, a not-for-profit economic development group. “It's a very competitive industry and Chicago is one of the few cites capable of handling some of the extremely large shows.”

McCormick Place, owned by a municipal corporation, was recently expanded and bills itself as the country's largest convention center, with 2.7 million sq. ft. of space and about 85 annual events. But most hotels serving the trade shows are across town, forcing visitors to take shuttles or taxis, Vicchiarelli says.

Each year the biggest shows gobble up all 30,000 hotel rooms within five miles of McCormick Place, adds Meghan Risch, spokeswoman for the Chicago Convention and Tourism Bureau, and many travelers book rooms as far away as the airport. Most would prefer to stay near the convention complex.

The market may be ripe for new convention lodging. The inventory of rooms in metro Chicago has remained static at about 100,000 since 2002, which has helped boost property fundamentals. The average occupancy rate for 2007 in the metro Chicago hotel market was 67.6%, up from 59.4% five years earlier, according to Smith Travel Research. Meanwhile, revenue per available room rose from $61.37 to $87.50 during the same period.

“It's all about risk and timing — when you bring the product to market,” says Brad Garner, vice president of Smith Travel Research. “We're entering one of those markets when the word of the day is caution.” But with no recent growth in hotel supply and rates rising, the market looks attractive to many investors, Garner says. “Chicago's certainly on the short list for a lot of people.”

News reports indicate that the hotel may offer a casino, but Alter says the reports are premature. “There's no license for it right now, so it's somewhat of a moot point.” But he adds a caveat. “If they want to have a casino there, we'd certainly be open to that.”

The company's new focus on hotel space is a response to demand, Ward says. “There's a significant, pent-up, unmet need for hotel space directly adjacent to McCormick Place. I think everybody will win by increasing the critical mass of hotel area.”