A maker of bicycle parts and accessories that helped put Chicago’s Fulton Market on the map as an office destination now plans to redevelop and occupy a large block of space in a vacant loft building. The project, located just east of the former meatpacking district, will be a joint venture with local developer R2.
R2 and SRAM have completed the purchase of the seven-story building at 550 W. Randolph St. on Wednesday, the companies confirmed.
SRAM plans to occupy about half the 168,750-square-foot building for its global headquarters, R2 CEO Matt Garrison said, with the joint venture expected to complete a redevelopment of the long-vacant structure by 2027.
Garrison declined to comment on the sale price, which CoStar News previously reported was expected to be around $14 million. The price was not immediately available in online property records.
The deal offers a twist on trends in recent years of office investors hunting down bargains to pre-pandemic property valuations and tenants upgrading their space as one way to encourage in-person work. In this case, SRAM is updating its space while also taking an ownership stake.
“A developer-user JV makes a lot of sense for both parties,” Garrison said in a statement to CoStar News. “It allows a developer to come out of the gate with significant pre-leasing, and a user to be aligned in the success of the project, getting compensated for the value of an anchor lease.”
Garrison added that “R2 and SRAM are aligned financially, culturally and on the vision for the project.”
CoStar News first reported R2’s plans to buy the building in April and first reported SRAM’s involvement in the deal in June.
Office exit
The seller is W.P. Carey, as part of the real estate company’s liquidation of its office space throughout the world. The New York-based firm is shifting focus to industrial real estate investments.
W.P. Carey had owned the Randolph Street building for about 35 years. Before hiring Cushman & Wakefield brokers to sell it early this year, W.P. Carey in recent years pitched it as an opportunity to redevelop and potentially expand the building for a tenant.
The new owners have no plans to expand the structure, which was completed in 1909, Garrison said. He declined to say how much the redevelopment is expected to cost.
Some space will be completed by next summer, with the full project to be completed in 12- to 18 months, Garrison said.
The redeveloped building will have a gym, conference space, lounge, rooftop deck and surface parking, Garrison said. He said one of property’s best amenities is proximity to the Ogilvie Transportation Center and the connected French Market food hall across the street.
The property’s anchor tenant and part-owner will have one-of-a-kind space, if its current office in the 1KFulton building at 1000 W. Fulton is any indication. SRAM’s office there features a one-eighth-mile test track and a social hub for employees to cheer on Tour de France teams using SRAM’s high-performance bike parts and accessories.
The current Chicago office is home to 250 employees, including some staff for nonprofit organization World Bicycle Relief, according to SRAM.
The new space also will include a test track and will be home to global headquarters and administrative offices. Functions such as product design and testing, sales and service and a test lab and machine shop also will move from 1KFulton to 550 W. Randolph, the company said.
“Our space requires extensive modifications and improvements, including special power and utility requirements,” SRAM CEO Ken Lousberg said in an emailed statement. “Owning the space gives us the flexibility to make these changes as needed.
“We partnered with R2 because of their expertise as property managers. They will handle the building and real estate aspects of the property, allowing us to focus on making the best bicycle components in the world.”
SRAM will have exterior signage atop the building’s exterior and its own lobby off Randolph.
Garrison said 550 W. Randolph’s space will come at discounted rents compared with newer towers nearby. A separate lobby is available along Clinton Street for another large tenant, Garrison said.
The brick structure is between fast-growing Fulton Market and skyscrapers along the Chicago River to the east.
Fulton Market pioneer
The deal comes more than 13 years after SRAM played a key role in the transformation of Fulton Market from a district of low-rise meatpacking businesses to a mix of office, residential and hotel towers.
SRAM was the first tenant to sign on for Chicago developer Sterling Bay’s redevelopment of the former Fulton Market Cold Storage building into modern offices. The next year, Google inked a market-shifting deal to create a new Midwest headquarters in Fulton Market.
That property and its owner, Office Properties Income Trust, now face uncertain futures.
The pending loss of SRAM as a tenant comes after the Newton, Massachusetts-based real estate investment trust last month filed for Chapter 11 bankruptcy protection. In doing so, the REIT noted that it expects to lose 742,000 square feet of tenancy representing $11.2 million in annualized revenue, from non-renewals through 2026.
It’s unclear whether SRAM’s departure is factored into those numbers, and the REIT did not immediately respond to a request for comment from CoStar News.
W.P. Carey also did not respond to a request for comment.
Office Property Income Trust’s problems with that Chicago structure would be multiplied if Google moves out when its high-profile redevelopment of the James R. Thompson Center in the Loop is completed in 2027. Google has not commented on which of its existing offices in Fulton Market, if any, are expected to shut down when the Thompson Center project is completed.
If Google were to leave 1KFulton, the REIT would face the prospect of re-leasing nearly the entire building that it bought for almost $355 million in 2021.
For the record
The seller was represented by Cushman & Wakefield brokers Tom Sitz and Cody Hundertmark. SRAM was represented in the deal by CBRE brokers Paul Reaumond and Brad Serot.