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Sterling Bay scores big payday with refinance of Google project

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A rendering of 1000 W. Fulton St.

The developer of Google's future Chicago office building pocketed tens of millions of dollars by refinancing the project with $220 million in debt.

Chicago-based Sterling Bay used the $220 million in loans to retire the West Loop property's existing debt and fund additional project costs, according to the Chicago office of HFF, which arranged the financing for Sterling Bay. The new loan replaces about $150 million in debt on the property at 1000 W. Fulton Market, with much of the difference between the new and old debt going directly to Sterling Bay.

The deal shows how developers are capitalizing on rising property values and a strong lending climate to seek cash-out financing, allowing them to pull millions of dollars out of properties without giving up ownership. Los Angeles-based Mesa West Capital provided a five-year, floating-rate loan on the 10-story building now called 1K Fulton, said Michael Kavanau, a senior managing director at HFF.

The loan is for about 80 percent of the property's value, Kavanau said. That would imply the West Loop building, a former cold storage facility, is now worth about $275 million.


The developer was able to take advantage of a lending market Kavanau described as “very robust.”

“There's a huge amount of capital for best sponsors and best assets,” he said. “There's even more capital in 2015 than in 2014.”

The deal allows Sterling Bay to pocket a lump of cash on the project about a year before the early 2016 projected move-in date for Google and the building's other office tenants.

Sterling Bay Managing Principal Andy Gloor declined to comment on the loan. It's unknown how much the firm has poured into the redevelopment of the 531,194-square-foot property, bounded by Fulton, Carroll Avenue and Morgan and Carpenter streets.

The financing includes $35 million in mezzanine debt placed with Morgan Stanley Real Estate Investing, according to Mesa West.


“The property is backed by strong sponsorship with deep experience in the market, which provided a competitive edge in leasing the asset and securing Google as the anchor tenant,” Mesa West Assistant Vice President Brandon Bachner said in a statement.

It is the second time in less than a year that Sterling Bay has cashed out with a large refinance. Last April, the firm took out a $185 million mortgage on the office building at 111 N. Canal St. which it bought for $100 million in December 2012. That building, which Sterling Bay has up for sale, is now believed to be worth well over $300 million.

Google has leased 357,928 square feet at 1K Fulton, according to HFF. Bike gear maker SRAM International and investment firm Sandbox Industries also have signed office leases. Retail tenants include steakhouse Armour & Swift, a collaboration between Boka Restaurant Group and B. Hospitality.

The building will include a fitness center, rooftop deck, on-site auto detailing and a 156-space parking garage with electric charging stations. There will also be a bike room and detailing and repair for bicycles.

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