The developer behind a ritzy senior living project in Streeterville has decided to pull the plug on the plan, according to sources in the neighborhood.

Last week, the resident group Streeterville Organization of Active Residents posted a message on its website stating that it had recently received a letter from Integrated Development Group LLC, in which the firm announced it would discontinue plans to develop its property at 850 N. Lake Shore Drive into a high-end senior living residence.

“After spending the better part of 2011 lining up construction financing, it has become apparent with the bankruptcy filing of our main competitor, The Clare, that it would be some time before we would feel comfortable beginning our program at 850,” read the letter.

The statement added that the Northbrook-based company had “begun to consider other potential uses for the property.”

The Clare at Water Tower, a senior living high-rise at 55 E. Pearson St., filed for bankruptcy in December after its owner, the nonprofit Franciscan Sisters of Chicago Service Corp., defaulted on a $229 million loan in September. Completed in 2008, the 53-story building is currently at one-third occupancy. Prices at the Clare range from around $550,000 for a one-bedroom unit to $1.2 million for a 1,700-square-foot, three-bedroom unit.

At 850 Lake Shore Drive, IDG envisioned a $150 million urban retirement community at the 19-story lakefront structure, once the home of the Lakeshore Athletic Club. Founded in the early 1920s and designed by architect Jarvis Hunt, the club was once an extravagant playground for the city’s young elite, featuring lavish amenities such as a mural-adorned swimming pool, pink marble staircases and sterling silver chandeliers hanging in the club’s numerous dining rooms and lounges.

The club was eventually closed in the mid-1960s, and in 1977 the building was bought by Northwestern University and converted into student residences.

After purchasing the 375,000 square-foot property in early 2008, IDG unveiled designs to redevelop the Beaux Arts-inspired building into a 128-unit retirement community to accommodate independent and assisted-living seniors over the age of 65, as well as provide dining, entertainment and athletic facilities for residents.

That plan won high marks with Streeterville residents and architectural preservationists who had rallied against a proposal to raze the building under a previous developer. While most of the structure’s interior had already been demolished, IDG planned to preserve two of the club’s rooms and retain the exterior of the building.

“People have embraced what we’re going to do,” the firm’s CEO Matt Phillips told Skyline in 2009.

Expected entrance fees for the development started in the $600,000 range for 1,123 square foot units, with monthly service fees and a 90 percent refund rate for exiting residents.

In 2010, the firm announced that it had formed an advisory board for the redevelopment, tapping designer Laurence Booth, Sotheby’s Midwest chairman Helyn D. Goldenberg and Chicago Botanic Garden CEO Sophia Siskel to steer the project.

Originally expected to open in 2012, the development dragged as IDG sought financing. In December, IDG CEO Matt Phillips told the Chicago Sun-Times that the group had slashed entrance fees and scaled back on marketing while it chased down a $110 million construction loan for the redevelopment, then slated for completion in 2014. Phillips told the paper that at the time only 26 of the project’s units were under contract.

Calls and emails sent to IDG were not returned by press time on Wednesday.

Where IDG goes from here is yet to be seen, but SOAR’s Gail Spreen said she didn’t expect the firm to throw the rehab proposal out with the bathwater.

“I would more give them the benefit of the doubt,” she said.

Spreen, who is also the president of Streeterville Properties, said she wouldn’t be surprised if IDG went toward a luxury rental model for the building — a trend that is catching on the in neighborhood, as nearby developments like the Waldorf Hotel are also opting to include rental units in their residential formulas.

Despite having seen the financial fallout and high vacancies at the Clare and watching the 850 Lake Shore Drive project fall to the pressures of an unreceptive market, Spreen said she still believed there was a place for retirement developments in her area.

“We’ve always known there is a need for senior housing,” she said. “We do have people that don’t want to leave the neighborhood when they get older … but there’s a limit to what people will pay for that.”