Foreclosures are all the rage in the media. You hear about people losing their homes and complaining that they were duked into an adjustable rate mortgage that “they didn’t know would reset from 2% to 7%” almost every day in the news. This ones a little different.
Earlier this month, Broadway Real Estate Partners LLC defaulted on the $700 mezzanine loan they took on the Hancock Tower. The Hancock was part of a $3.3 billion portfolio acquisition by Broadway from local real estate firm Beacon Capital (talk about getting out at the right time!).
Broadway is now feeling the effects of a softening Boston commercial real estate market with tenant of the Hancock Tower vacating their spaces with downsizing and budget cuts. These vacancies have brought the market value down below what is owed by Broadway on the Hancock.
Like in a home foreclosure, the first lender priority over anyone behind them in line. That first lender is a developer out of Chicago named John Buck. Buck stands to make a substantial gain if the property goes under since his loan was well below market value for the building.
My Thoughts: I’m not suprised to hear about this happening. Just like people investing at the top of the residential market, some investors are bound to be burnt. What I still don’t understand is why some companies still pay the $60-100/sq. ft. to be in a building in the middle of a city. If your company has no need to be near a city, why pay those prices? I think after this downturn you will see a lot more office construction outside of cities.
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