Phase 2 Of Fulton Market Has Arrived!
Shapack Partners is driving the changing landscape of Fulton Market District and the West Loop, and we’re beyond excited to host CEO Jeff Shapack at Bisnow’s Chicago Adaptive Reuse Revolution and Property Management event, 7am Tuesday, Sept. 20, at the Trump International Hotel and Tower. But first, he talked to us about how Fulton Market is in the next generation of its rebirth.
Jeff—whose projects in the neighborhood include Soho House Chicago, WeWork’s 90k SF Fulton Market flagship, the recently opened 29-story apartment tower The Parker Fulton Market, and Momotaro with Boka Restaurant Group’s corporate HQ—says Sterling Bay’s deal to bring McDonald’s offices to the neighborhood signals Phase 2 of Fulton Market’s evolution. The foundation started with Harpo Studios; the early restaurants of Jerry Kleiner, One Off Hospitality and Boka Restaurant Group; the city’s $39M Morgan Street "L" Station, and the supply of early 2000s condominium conversions in the West Loop just south of Fulton Market.
Phase 1 included Soho House Chicago (pictured), which became the city’s catalyst for defining the submarket, adaptive reuse of Amity Packing as WeWork’s Fulton Market flagship with 1,000 members, Google’s decision to move from River North and triple its office space at the adaptive reuse of 1K Fulton, and Shapack’s 182-key Hoxton Hotel. A Phase 2 development is Shake Shack opening a location at 185 North Morgan. (Shapack razed the existing building last week.)
Jeff says the landscape was markedly different five years ago when these projects were announced. Developers were buying land directly from the meatpackers and produce wholesalers. Now those groups are selling their assets through brokers, seeking—and receiving—the highest bids. The city’s expansion of DX zoning to Ogden Avenue is helping to maintain the brisk development activity in the market, as developers are now moving west past Ashland; Jeff cites activity in the Illinois Medical District and around the United Center as examples. Another contributing factor is the ability to buy FAR directly from the city. Jeff says this is important as 80% of the money paid to the city goes to an opportunity fund to bring development to neighborhoods across Chicago that need improvement.
Jeff tells us he’s glad Shapack bought in Fulton Market when it did, as there are no longer large buildings available on the market in the lines of the Allis warehouse building that became Soho House, Amity Packing that became WeWork’s Fulton Market flagship or the Fulton Market Cold Storage building that Sterling Bay transformed into 1K Fulton.
Now Shapack is focusing on delivering its projects in the pipeline and considering the sale of its assets on a case-by-case basis. Jeff says Shapack’s February sale of the building housing Nonna’s and Formento’s restaurants to New York City-based Adjmi Acquisitions for $7.5M produced a phenomenal sub-5 cap rate. Jeff sees promise in out-of-town speculation from companies like Madison Capital and Thor Equities, which view Fulton Market as Chicago’s answer to New York’s meatpacking district, and don’t want to miss out. Jeff says these investors can now look at round-trip deals that are selling in Fulton Market and not just at value-add deals.
Jeff says Shapack values solid working relationships with local aldermen and community groups like the West Loop Community Organization, West Central Association and Neighbors of the West Loop over the years. For the Parker (pictured), Jeff tells us the development team listened to neighbors discuss how it’s a very dog-friendly community and how parkland is at a premium. Shapack responded by adding a 1,100 SF dog park and a grassy area to the Parker’s sixth-floor outdoor pool, so tenants wouldn’t overtax already limited resources.
Jeff says he views the ability to buy FAR directly from the city, and the Department of Planning and Development’s willingness to consider other development options in planned manufacturing districts, as a second chance to build the future of Chicago. With development already spreading west of Ashland, Jeff sees developers jumping north to the North Branch Industrial Corridor, while still accommodating the many manufacturers already in the PMD like Ozinga. Jeff believes that resistance to adding density in the outlying neighborhoods is the biggest issue facing Chicago, compared to major markets.
Another obstacle: steady rent spreads. Office and residential rents never seem to double in the city. The exception to the rule is retail, where Fulton Market rents were below $40/SF when Jeff began buying. Now Shapack’s retail asking rents range from $60 to $75/SF, while some competitors are asking $85 to $105. This can impact future deals, especially as out-of-town investors continue to kick the tires on available properties. The costs of land, construction and labor aren’t going down, and these rent spreads are already being factored into any deals.
To hear more from Jeff and our other expert panelists, attend Bisnow’s Chicago Adaptive Reuse Revolution and Property Management event, 7am Tuesday, Sept. 20, at the Trump International Hotel and Tower. Register here.