• Thu. May 12th, 2022

Cybersecurity firm Fortinet buys West Loop office building

ByLinda W. Smith

Mar 30, 2022

It’s unclear what prompted Fortinet to purchase the seven-story building, and company spokespersons did not respond to requests for comment. It is likely that this move will allow Fortinet to develop its local team. The company has nearly 40 Chicago-based jobs listed on its website.

It’s a rare move by a company to buy an office building in the city, although big, cash-rich tech companies including Google, Amazon and Facebook are among those that have acquired more than real estate during the COVID-19 pandemic, including large office buildings and campuses.

Fortinet spent nearly $181 million in 2021 on real estate, according to its latest quarterly earnings report.

If Fortinet is hiring locally, it would be in line with many other coastal tech giants that look to Chicago for tech-savvy talent that is vastly more affordable and easier to retain than on the coasts. While these companies have always had large sales teams in Chicago, others are hiring for engineering positions.

In late 2020, Fortinet acquired Chicago-based cyber network monitoring company Panopta, which leases a small office at 412 S. Wells St.

The sale of the Randolph property completes a cash-in for PRG that is far less lucrative than expected when the property hit the market just before the pandemic hit.

The company hired brokerage firm Cushman & Wakefield in February 2020 to put the building up for sale, an offer that at the time estimated bidders would fetch more than $28 million, even though the building had just losing a law firm tenant and a Starbucks regional office that reduced to 70% leased. Cushman touted the vacancy at the time as an opportunity for a buyer to lease the space at higher rents at a time when demand for downtown office space was increasing.

A sale at that high price would likely have netted a big profit for PRG, which teamed up with Chicago developer Sterling Bay in 2011 to buy the property for $4.7 million. Their company took out a then-$6 million loan from real estate investment firm WP Carey, according to Cook County real estate records, and spent an undisclosed amount to renovate it with a deck on the roof, a redesign of the lobby and updated elevators.

The building is now wholly owned by PRG, which refinanced the building in 2013 with a new $16.2 million mortgage from Wells Fargo, property records show. This loan was bundled with other loans and sold to commercial mortgage-backed securities investors. The property was valued at $21.1 million when it was refinanced, according to Bloomberg lending data.

But COVID’s onslaught on demand for downtown office space has taken its toll on property values. The building generated free cash flow of approximately $888,000 in the first nine months of 2021, barely more than PRG’s debt service over that period. In 2019, the building’s net cash was nearly $3 million, nearly three times PRG’s debt service.

PRG’s amortizing loan had a remaining balance of $13.9 million as of last month, according to Bloomberg data.

A PRG spokesperson did not respond to a request for comment on the sale. The building was the only office building in its portfolio, which is dominated by industrial and multi-family properties.

Fortinet now owns a building with a handful of tenants with impending lease expirations, according to Bloomberg lending data. The largest tenant, the Chicago office of San Francisco-based brand management firm Prophet, is leasing 22,000 feet under a deal that expires in February 2023.

The retail space on the ground floor of the building previously housed the famous Asian cuisine restaurant Embeya before closing abruptly in 2016 and sparking a wire fraud scandal involving its owners. Boka Restaurant Group opened an Italian restaurant in the space called Alla Vita in September.

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