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Lucrative Fulton Market Deal Could Mean There's Life After COVID-19

1201-1215 West Fulton Market

Developers and investors are still setting their sights on the Fulton Market neighborhood, even though the coronavirus pandemic casts a pall over much of the economy. Fulton St. Cos. and investor Chris Merrill last week closed the $20M purchase of 1201 West Fulton Market, a 36K SF industrial property that the joint venture plans to replace with a roughly 300-unit apartment project, Crain's Chicago Business reported

The former owner said in the past few years, his firm sold several Fulton Market properties for much more than the original prices, but this deal was easily the most lucrative. And the willingness to complete the buy now at such a high price is a huge vote of confidence in the submarket's direction. 

"I think it's a gutsy move to make a bet this size under these conditions," Drapac Capital Partners Chief Operating Officer Sebastian Drapac told Bisnow. "There are obviously visibility issues from an investment perspective at this time, but confidence and momentum are powerful forces."

Drapac bought the 25K SF Fabbri Sausage Plant at 166 North Aberdeen St., also in 2014, for about $3M, and in 2015 sold it to residential developer MCZ Development for $6M.  

"That was our worst deal in Fulton Market," he said.

Other investors also see Fulton Market's long-term potential, especially those who hunger after office properties fully leased to blue-chip corporations. Normandy Properties, an investor based in Moon Township, Pennsylvania, is set to buy McDonald's 575K SF headquarters building from developer Sterling Bay for about $420M, according to the Chicago Tribune.

Earlier this year, Germany-based Deka Immobilien paid $86M for 905 West Fulton Market, the 98K SF headquarters of Mondelez International.   

Atlanta-based DCP mostly focuses on single-family residential, but more than six years ago it identified Fulton Market as an area where prices were getting set to zoom high. It paid less than $2.7M for the 1201 West Fulton Market warehouse in 2014, just as the heavily industrial district began its transformation into a sleek office hub. DCP first hired NAI Hiffman to explore a possible sale two years later.

"Our investment thesis played out to plan and when we bought it we only paid for its underlying investment value, which was a warehouse, and didn’t pay a premium for any blue-sky development potential," Drapac added. "From a risk management perspective, this is how we purchase assets because our downside risk is minimal and our upside potential is exponential."

Fulton St. has a lot of plans for the neighborhood. Founder Alex Najem told Crain's it will soon break ground on a 150K SF office property at 1043 West Fulton. That's a sign of confidence that the local office market, currently stilled by the coronavirus crisis, will see enough demand to fill a host of new buildings.

Builders completed more than 1.1M SF in the area so far in 2020, according to Colliers International. There is also 1.8M SF of office space under construction nearby, nearly 1M SF of which is expected to deliver by the end of the year. A majority of those will deliver vacant.

Launching a residential project on the site of 1201 West Fulton Market will give Fulton St. Cos. a chance to tap into the demand from office workers who want to live near their workplaces.  

"Instead of competing with [Fulton Market] office developers, we want to be able to house the employees that are going to be working and are currently working in the neighborhood," Najem told Crain's.