Re: Filene's
One Franklin Developer Struggling to Land Financing
Boston Business Journal - by Michelle Hillman
Friday, October 24, 2008
Gale International CEO John B. Hynes III is about $50 million shy of the $400 million needed to finance the $700 million project at the site of the former Filene?s building.
Hynes has lined up six banks, including Bank of America Corp. and Bank of Ireland, and believes he can close the deal by the end of the year.
?We need a $400 million loan,? said Hynes. ?We have between $350 million and $400 million right now. We do not have the loan. We have loan commitments for almost all of the funds required.?
Hynes is navigating choppy waters. He?s trying to arrange a large construction loan in one of the most difficult lending environments since the Depression.
A half dozen banks have pledged to loan Hynes close to $400 million but the institutions still need to sign on the dotted line, he said.
Hynes long ago secured $300 million in equity, but without the $400 million in debt the 1.2 million square-foot project in the heart of Downtown Crossing will not be able to move forward. Hynes could also lose the tenants he has tentatively signed up to lease space in the building ? among them the law firm Fish & Richardson PC, which has agreed to lease 120,000 square feet of office space, and Club Monaco, which has agreed to lease 4,170 square feet of retail space. Hynes said converting the letters of intent into leases rides on the loan closing and the project getting built on time.
?If there?s no loan there?s no space,? he said.
Time is running out for Hynes. ?You get to a point in time ... our own money is only going to get half the project built. We need the loan.?
In the past year Hynes has shopped his project around to at least 20 different banks and has watched helplessly as the market eroded and construction financing slipped through his fingers. At one point Sovereign Bank was one of the banks considering funding the deal, but never committed, said Hynes.
A year ago Hynes had four banks committed to provide $500 million in debt. Owners were to put in $200 million in equity. Then in April, the deal, and the market, started coming apart. Two of the four banks decided to reduce the amount of debt pledged by $100 million and the other two banks dropped out completely.
Hynes was told to restructure the deal and come back. Bottom line: the banks could only commit to $400 million in debt, meaning Hynes and his partners Vornado Real Estate (NYSE: VNO), had to put in another $100 million in equity.
Developers have since turned to small banks and foreign banks in place of larger domestic banks. Because of that, it takes many more banks, or combinations thereof, to amass enough financing to close a large deal.
Many of the smaller banks are now trying to hold onto money for their own customers, said Peter Goedecke of Boston-based Goedecke & Co. LLC, which arranges financing for developers.
?The major banks are justifiably preoccupied with the national (impacts) of the credit crisis,? said Goedecke.
The trouble developers are having obtaining construction loans is a national problem, not a local one. However, a number of Boston developers are in the same pickle as Hynes including John Drew and Joseph Fallon, who are on tap to build two of the city?s largest projects on the South Boston waterfront. Drew has plans to build 600,000 square feet of retail space in South Boston but is in no rush to get started. Fallon is working to arrange financing for a 500,000-square-foot building he plans to lease to Vertex Pharmaceuticals Inc.
?We?re just going to proceed slowly because the market is so poor,? Drew said. ?It?s bad. It?s very hard to get a loan that you?re willing to accept right now.?
The pressure is mounting for Hynes, who is being closely watched by Mayor Thomas M. Menino, who has chastised developers publicly for moving forward with demolition and construction despite not having financing.
?There is no question that this is the most difficult time in my memory, particularly for large projects to arrange construction financing,? said George Fantini of Fantini & Gorga.
Hynes knows it will be a challenge to close a construction loan but he?s determined to get the deal done. And if the loan doesn?t close by the end of the year?
?We?re not going to think about that,? he said. ?We?re going to (get the loan).?
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