CHICAGO - Chicago-based European American Realty Ltd. has filed plans with the City of Chicago to build the world's tallest building at 7 South Dearborn Street. But the plan has drawn skepticism from Windy City real estate pundits who estimate the project will cost $400 million.

Plans for the development call for a 112-story, 1,537 ft. mixed-use building, which would reach 2,000 ft. when topped by two 463-ft. antennas. If completed, the project would eclipse 1,483-ft. Petronas Tower in Kuala Lumpur, Malaysia, which is now the world's tallest building.

Though skepticism abounds, one Chicago financial executive is cautiously optimistic. "I think it stands a decent chance," says Charles Krawitz, vice president and regional origination manager at Chicago-based LaSalle Bank N.A. "The mixed-use nature gives it a better shot than if it was purely the world's tallest office building. That said, we've seen a lot of plans for the world's tallest building here in Chicago come and go, but it would be nice to have that distinction back."

On a smaller and perhaps more realistic scale, the Chicago-based partnership of Walton Street Capital and Development Resources LLC has landed its first tenant in Union Tower, Chicago's first spec office development since 1992. New York-based Waterhouse Securities will occupy 83,000 sq. ft. with an option for an additional 40,000 sq. ft. when the Class-A building opens in October.

Development Resources LLC acquired the 550 W. Van Buren St. site in 1987 and waited for development to catch up to the West Loop as land prices in the Wacker and Central Loop submarkets escalated, says Gene Ventura, vice president of the Chicago developer.

"Our opinion was that the new era of office buildings was going to call for smaller buildings built over a shorter cycle to meet current tenant demands and keep costs at a point that are competitive with current rents," says Ventura. "When we saw the escalation of rents beginning in about 1997 and the absence of large blocks of available space, we took one of our sites and designed the building."

But, if Insignia/ESG's second quarter market report is any indication, leasing the remainder of Union Tower might not be an easy task. Chicago CBD Class-A office buildings recorded more than 1 million sq. ft. of negative absorption, according to the Chicago office of New York-based Insignia/ESG. Class-B and Class-C buildings posted positive absorption of 250,000 sq. ft. and 140,000 sq. ft., respectively, bringing the overall second quarter absorption rate to negative 677,842 sq. ft.

The Amoco building (200 E. Randolph), Three First National Plaza (70 W. Madison), and Citicorp Center (500 W. Madison) alone contributed more than 850,000 sq. ft. of CBD Class-A office space. Mergers and acquisitions as well as cost-cutting measures are the primary reasons for the Class-A negative absorption, says Michael Klein, Insignia/ESG's executive managing director of the Midwest region.

"At least five existing Class-A buildings could provide large blocks of 100,000 sq. ft. or more in the second quarter, in contrast to six months earlier when no such contiguous space was available in similar properties," Klein says.

Despite negative absorption, average Class-A rents increased 3.9% to $33.13, while average Class-B rents increased 5.8% to $25.96, according to Insignia/ESG.

* Two Chicago real estate leaders - Jack Higgins and Penny Pritzker - have joined forces to form Higgins Development Partners LLC. The new company is controlled by Higgins and interests of the Pritzker family.

Higgins will serve as chairman and CEO of the company, while Jerry Pientka, formerly with Walsh Higgins & Co., will serve as president. Higgins previously served as chairman and CEO of Walsh Higgins & Co., which he co-founded with Matthew and Daniel Walsh in 1980. The transition to the new development company will allow the Walshes to focus on their core business, Higgins says.

The new company will be based in Chicago with offices in San Francisco and Washington, D.C., and will pursue development and program management opportunities across the nation. Higgins Development Partners has committed more than $100 million of equity to projects such as a 500,000 sq. ft. office development in Cincinnati; a 48-acre, 450,000 sq. ft. industrial park in Allentown, Pa.; and LaSalle Park, a 25-acre parcel in Chicago's South Loop that the company plans for mixed-use development.

* Contracts were signed to commence construction of the 18-story Peninsula Chicago. Partners in the project - scheduled for completion in March 2001 - are The Hong Kong and Shanghai Hotels Ltd., Denver-based Thomas J. Klutznick Co. and Boston-based Himmel and Co.

The tower will be built above the existing 730 North Michigan Ave. retail complex, and its entrance will be located on Superior Street. The hotel will include 336 guest rooms and suites and will feature a glass-enclosed ballroom with floor-to-ceiling windows, an indoor pool and roof-top spa, and a variety of suites including the Peninsula Suite with a private terrace.