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Hancock owner defaults on loan
2 lenders might foreclose on Broadway Partners
By Casey Ross, Globe Staff | January 23, 2009
The John Hancock Tower is facing foreclosure and its two top lenders are angling to buy the iconic Back Bay skyscraper after its current owner defaulted on hundreds of millions of dollars in debt.
Normandy Real Estate Partners and Five Mile Capital Partners, which contend they hold a controlling portion of the Hancock's debt, are moving to foreclose on owner Broadway Partners after it defaulted on loans it used to buy the 60-story tower and six other properties in 2006, according to two people who have been briefed on Normandy's plans.
As part of this effort, Normandy and Five Mile would have to buy out other Hancock lenders in order to gain ownership, according to several other real estate executives knowledgeable about the situation.
Broadway has not commented on its loan default or the current situation. But the current economic climate has driven down values on commercial properties such as the Hancock, while the credit crisis has made it difficult for real estate companies such as Broadway to refinance with new debt or raise other capital to meet loan obligations.
Executives with Normandy and Five Mile declined to comment.
The default has set off tense negotiations among the many creditors who loaned Broadway money for the purchase about how to recoup their investments, according to industry executives involved in the matter.
The Hancock fallout is a high-profile example of the wreckage created by highly leveraged real estate acquisitions made at the top of the market in 2006 and 2007.
Many of those deals, financed with high levels of debt spread among multiple lenders, quickly fell apart once the recession began to ripple through commercial real estate.
Local real estate professionals estimate the Hancock's value is now between $700 million and $900 million, far less than the $1.3 billion Broadway Partners paid for it just two years ago.
"The Hancock is just part of the time we're in right now," said John Fowler, managing director of the mortgage banking firm Holliday, Fenoglio and Fowler. "It's a product of inflated values and loose, low-cost, highly leveraged money."
Broadway Partners bought the seven-building portfolio for $3.3 billion in December 2006 with a complicated debt package that included many lenders, all with differing levels of priority. The Hancock portion of the package included a $650 million senior loan and a second level of debt, known as mezzanine financing, worth about $470 million.
Broadway failed to make a payment due on the mezzanine financing two weeks ago.
The Hancock's declining value has essentially wiped out the positions of several lenders, leaving Normandy and Five Mile first in line to recover. The two were recently notified by the company servicing the debt that based on the terms of credit agreements they now hold the controlling position, according to an executive briefed on Normandy's situation. The pair's portion of the Hancock mezzanine debt is $75 million.
That controlling position gives Normandy and Five Mile the right to foreclose on Broadway now that it has defaulted, and following that, can seek to buy out other, subordinate lenders to essentially take control of the Hancock. The pair have not initiated foreclosure, according to public records, but the people briefed on their plans said it is the intention of the two companies to foreclose.
One of those other lenders, the John Buck Co., declined to comment.
Some of the other lenders, however, may sue to stop a Normandy-Five Mile takeover, including those whose positions were wiped out by the lower value of Hancock, according to real estate executives who are familiar with the debt situation.
Normandy has been expanding its presence in the Boston area in recent years and now owns several commercial properties, including 99 Summer St. and several properties in the suburbs. Five Mile is a Connecticut-based investment firm with $2.9 billion in assets under management, according to its website.
Casey Ross can be reached at cross@globe.com.
? Copyright 2009 The New York Times Company
http://www.boston.com/business/articles/2009/01/23/hancock_owner_defaults_on_loan/
2 lenders might foreclose on Broadway Partners
By Casey Ross, Globe Staff | January 23, 2009
The John Hancock Tower is facing foreclosure and its two top lenders are angling to buy the iconic Back Bay skyscraper after its current owner defaulted on hundreds of millions of dollars in debt.
Normandy Real Estate Partners and Five Mile Capital Partners, which contend they hold a controlling portion of the Hancock's debt, are moving to foreclose on owner Broadway Partners after it defaulted on loans it used to buy the 60-story tower and six other properties in 2006, according to two people who have been briefed on Normandy's plans.
As part of this effort, Normandy and Five Mile would have to buy out other Hancock lenders in order to gain ownership, according to several other real estate executives knowledgeable about the situation.
Broadway has not commented on its loan default or the current situation. But the current economic climate has driven down values on commercial properties such as the Hancock, while the credit crisis has made it difficult for real estate companies such as Broadway to refinance with new debt or raise other capital to meet loan obligations.
Executives with Normandy and Five Mile declined to comment.
The default has set off tense negotiations among the many creditors who loaned Broadway money for the purchase about how to recoup their investments, according to industry executives involved in the matter.
The Hancock fallout is a high-profile example of the wreckage created by highly leveraged real estate acquisitions made at the top of the market in 2006 and 2007.
Many of those deals, financed with high levels of debt spread among multiple lenders, quickly fell apart once the recession began to ripple through commercial real estate.
Local real estate professionals estimate the Hancock's value is now between $700 million and $900 million, far less than the $1.3 billion Broadway Partners paid for it just two years ago.
"The Hancock is just part of the time we're in right now," said John Fowler, managing director of the mortgage banking firm Holliday, Fenoglio and Fowler. "It's a product of inflated values and loose, low-cost, highly leveraged money."
Broadway Partners bought the seven-building portfolio for $3.3 billion in December 2006 with a complicated debt package that included many lenders, all with differing levels of priority. The Hancock portion of the package included a $650 million senior loan and a second level of debt, known as mezzanine financing, worth about $470 million.
Broadway failed to make a payment due on the mezzanine financing two weeks ago.
The Hancock's declining value has essentially wiped out the positions of several lenders, leaving Normandy and Five Mile first in line to recover. The two were recently notified by the company servicing the debt that based on the terms of credit agreements they now hold the controlling position, according to an executive briefed on Normandy's situation. The pair's portion of the Hancock mezzanine debt is $75 million.
That controlling position gives Normandy and Five Mile the right to foreclose on Broadway now that it has defaulted, and following that, can seek to buy out other, subordinate lenders to essentially take control of the Hancock. The pair have not initiated foreclosure, according to public records, but the people briefed on their plans said it is the intention of the two companies to foreclose.
One of those other lenders, the John Buck Co., declined to comment.
Some of the other lenders, however, may sue to stop a Normandy-Five Mile takeover, including those whose positions were wiped out by the lower value of Hancock, according to real estate executives who are familiar with the debt situation.
Normandy has been expanding its presence in the Boston area in recent years and now owns several commercial properties, including 99 Summer St. and several properties in the suburbs. Five Mile is a Connecticut-based investment firm with $2.9 billion in assets under management, according to its website.
Casey Ross can be reached at cross@globe.com.
? Copyright 2009 The New York Times Company
http://www.boston.com/business/articles/2009/01/23/hancock_owner_defaults_on_loan/