It's unclear what prompted Fortinet to purchase the seven-story building, and spokesmen for the company did not respond to requests for comment. It's likely the move creates room for Fortinet to grow 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 property in the city, though big tech firms with lots of cash on hand, including Google, Amazon and Facebook, are among those that have been acquiring more 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 most recent quarterly earnings report.
If Fortinet ramps up hiring locally, it would be in line with many other coastal tech giants that are turning to Chicago for tech-savvy talent that is largely more affordable and easier to retain than on the coasts. While such companies have historically had large sales teams in Chicago, more are hiring for engineering roles.
Fortinet in late 2020 acquired Chicago-based cyber network monitoring company Panopta, which leases a small office at 412 S. Wells St.
The Randolph property sale completes a cash-out for PRG that is far less lucrative than they expected when the property hit the market just before the start of the pandemic.
The firm hired brokerage Cushman & Wakefield in February 2020 to put the building up for sale, an offering that bidders at the time estimated would fetch more than $28 million, even though the building had just lost a law firm tenant and a Starbucks regional office that brought it down to 70% leased. Cushman framed that vacancy at the time as an opportunity for a buyer to lease up the space at higher rents at a time when demand for downtown office space was surging.
A sale at that high price would have likely netted a fat profit for PRG, which teamed up with Chicago developer Sterling Bay in 2011 to buy the property for $4.7 million. Their venture took out a $6 million loan at the time from real estate investment trust W.P. Carey, Cook County property records show, and spent an undisclosed amount renovating it with a rooftop deck, lobby redesign and updated elevators.
The building is now fully owned by PRG, which refinanced the building in 2013 with a new $16.2 million mortgage from Wells Fargo, according to property records. That loan was packaged with other loans and sold off to commercial mortgage-backed securities investors. The property was appraised at $21.1 million when it was refinanced, according to Bloomberg loan data.
But COVID's assault on demand for downtown office space took its toll on the property's value. The building generated net cash flow of roughly $888,000 during the first nine months of 2021, just slightly more than PRG's debt service during that period. In 2019, the building's net cash flow was close to $3 million, or nearly triple PRG's debt service.
PRG's amortizing loan had a remaining balance of $13.9 million as of last month, Bloomberg data show.
A PRG spokesman did not respond to a request for comment on the sale. The property was the only office building in its portfolio, which is dominated by industrial and multifamily properties.
Fortinet now owns a building with a handful of tenants with imminent lease expirations, according to Bloomberg loan data. The largest tenant, the Chicago office of San Francisco-based brand management firm Prophet, leases 22,000 feet on a deal that expires in February 2023.
The retail space on the building's ground floor was previously home to popular Asian cuisine restaurant Embeya before it abruptly shuttered in 2016 and set off a wire fraud scandal involving its owners. Boka Restaurant Group in September opened an Italian restaurant in the space called Alla Vita.
Gloss