While some real estate investors were celebrating the new year, Alex Najem was closing his latest Fulton Market deal.
The CEO and founder of development firm Fulton Street Cos. partnered with Shanna Khan, the daughter of the owner of the NFL’s Jacksonville Jaguars, to clear the way to break ground on their next big office project in the booming subsection of the West Loop with a $49 million purchase on Dec. 30.
They bought the Lake Street Lofts property at 910 West Lake Street from a group of investors led by Chicago architect Pat Fitzgerald, Najem said.
The deal is part of an assemblage the developers needed in order to move forward with a 530,000-square-foot office building they plan to build at 917 West Fulton Street. The structure will face Fulton and extend south along Sangamon Street, and wrap around in an L shape to the east to incorporate the existing Lake Street Lofts building that includes 89 vacant apartments.
Now, Najem and development firm JDL, which is partnering with Fulton Street Cos. on building the project, are turning their attention toward negotiating with multiple lenders on terms of a construction loan for the $330 million project. They need to borrow $240 million, and expect to be the only office project to break ground in Fulton Market this year, largely due to interest rates surging over the past six months, Najem said.
Despite the potentially higher cost and risk of construction debt now versus a year ago, Najem suggested the development’s position is strong as he anticipates interest rates will come down by the time the project is completed and leased up enough to refinance the property.
“We’d rather take the risk on building during a higher rate period and come out stabilized during a lower rate period,” Najem said.
The Lake Street deal amounts to a cashout for Fitzgerald, whose venture bought the six-story building in 1998 after the Schwinn bicycle company, which had used the property as its offices for years, moved on. Fitzgerald’s venture then converted most of it into apartments, while his architecture firm, FitzGerald Associates, used the first floor as a studio until moving its offices to 200 West Monroe Street about a year ago. The architecture firm is working with Najem’s development firm on the office project, a spokesman for FitzGerald said.
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Najem’s partner Ross Babel already controls the rest of the site they plan to develop after buying the vacant corner property along Fulton and Sangamon for $22 million in 2019, Cook County records show. They also struck a lease with Harrison Street Real Estate Capital to anchor the building as an office tenant across about 150,000 square feet, a move that will triple Harrison’s current footprint at the 52-story building on 444 West Lake Avenue, a property owned by Ivanhoe Cambridge and Hines.
Ground-floor retail spaces in the building have also already been reserved by steakhouse Gibson’s for a 15,000-square-foot spread and upscale grocer Dom’s Kitchen, which will take 25,000 square feet as Fulton Market’s first grocer.
Najem hopes to start construction as soon as March. This is the third Fulton Market project he’s partnered with Khan in as an equity investor, after she invested in the 433-unit apartment project Najem’s firm is building at 1201 West Fulton Street as well as 1200 West Fulton, where they plan to build an office and housing tower of more than 1 million square feet.