More than a decade after signing a pivotal lease in the transformation of Fulton Market, a maker of bicycle parts and accessories is negotiating to move from the former meatpacking district to become a tenant and investor in a Chicago real estate firm’s redevelopment of a vacant property to the east.
SRAM is in advanced talks to move its headquarters out of the 1KFulton building and into about half the space in the more than 160,000-square-foot loft office building at 550 W. Randolph St. that Chicago developer R2 has a contract to buy just east of Fulton Market, according to people familiar with the situation.
R2 is expected to pay about $14 million, with SRAM to invest in the development and sign a long-term lease as the first tenant. R2 also has been in talks with tenants, the people familiar said, to fill additional space in the property as it looks to close on the purchase.
The deal is still preliminary and still could fall apart amid an uncertain economy, high interest rates and historically low demand for office space.
CoStar News first reported in April that R2 had a deal to buy 550 W. Randolph from New York-based W.P. Carey, which is winding down its office investments throughout the world. At the time, SRAM’s potential involvement was not known.
If SRAM does complete a deal to occupy and partly own the Randolph Street structure less than a mile east of its current space, it would mark the end of an important chapter in the rise of formerly industrial Fulton Market as a home to office, residential and hotel high-rises.
In recent years, the area emerged as the fastest-growing urban office market in the country, a major change from a district once known for low-rise brick structures, forklifts, delivery trucks and meatpackers’ blood-soaked smocks. Early movers locked in below-market rents before the cost of deals soared in the years that followed the 1KFulton development.
Pivotal deals
At the time SRAM committed to its current lease of more than 70,000 square feet, Chicago developer Sterling Bay had just bought the 10-story Fulton Market Cold Storage building with plans to convert it into offices and land a major office tenant to legitimize the area as a destination for corporate space. The property was rebranded as 1KFulton, a reference to its address at 1000 W. Fulton.
SRAM’s 2012 deal to lease space within the former cold storage building was followed in 2013 by a market-shifting deal by Google to fill most of the remaining space in a structure that Sterling Bay redeveloped and expanded for the tech giant’s Midwest headquarters. That led to waves of future developments and office leases, including McDonald’s moving its global headquarters from the western suburbs to a ground-up development by Sterling Bay.
R2 declined to comment. SRAM and W.P. Carey did not respond to requests for comment from CoStar News.
Founded in 1987, SRAM’s products include Zipp wheels, RockShox suspension components, Truvativ gears and Velocio jerseys and shorts. The company also has offices in Colorado Springs, Colorado, and Indianapolis.
Its space in 1KFulton is a mix of traditional offices, research-and-development space and a bike track around the exterior of the office.
Finding a new tenant to fill that space could be a challenge for landlord Office Properties Income Trust, which bought the Google-anchored building for almost $355 million in 2021.
The real estate investment trust also faces the prospect of having to re-lease virtually the entire building if Google leaves when its in-progress redevelopment of the Helmut Jahn-designed James R. Thompson Center in the Loop business district is completed.
The big thaw
Google has not yet said if it plans to keep Fulton Market space after it moves to the Thompson Center at an unspecified date. Google and Office Properties Income Trust did not respond to requests for comment from CoStar News.
Though it is a high-demand office market now, SRAM’s move to Fulton Market was pioneering more than a decade ago. Redevelopment of the cold storage structure also was risky for Sterling Bay, which was attracted to the building at the time in part because it was the tallest in the area at the time, with room to expand horizontally to create a big, modern office building.
Sterling Bay’s theory that office tenants would move west from the Loop was untested, and the project required a zoning change to allow a conversion to offices. In perhaps the biggest risk, engineers told the developer that it was possible the structure — reinforced for decades by thick layers of ice — could collapse after it thawed.
The building, and the area’s commercial real estate expansion, proved to be enduring. Tenants moved into the building in late 2015.
By late 2021, a CoStar analysis found Fulton Market to be the fastest-growing urban office market in the country, with the total supply of space increasing by an average of 100% annually over a five-year period.
For the record
The seller is represented by Cushman & Wakefield brokers Tom Sitz, Cody Hundertmark and Dan Deuter.