Which investment firm will collapse next in fits of overleveraged agony? It’s an increasingly popular, albeit morbid, parlor game that real estate folks like to play now that leases are scarce, contracts nonexistent and Harry Macklowe no longer diverting their attention with his various shenanigans. On this week’s radar: golden boy Broadway Partners.
Broadway Partners has been an obvious source of speculation for a while. But last week brought fresh chatter, courtesy of a Boston Globe columnist, who expressed himself dubious that the firm would be able to refinance the John Hancock Tower, the stunning I.M. Pei-designed scraper in Boston, for which Broadway is saddled with $472 million in short-term debt. (The columnist isn’t the only naysayer. As one New York broker told The Observer, “If they get out of that Hancock thing, it will be a miracle.”)
A single highly leveraged trophy tower would be worrisome enough. But, using loads of short-term debt, the firm bought more than $13 billion worth of office towers in five years, from Houston to San Francisco, from New York to D.C., rising from a relatively unknown regional player to one of the shining stars of the galloping investment market. New York City’s Bankers Trust Building at 280 Park Avenue was a Broadway Partner’s buy; so, too, was the ample—and amply ugly—450 West 33rd Street; as were 340 Madison Avenue, Park Avenue Atrium and 100 Wall Street. So burnished did the firm’s reputation become that President Bush nominated Charles Millard, then its managing director, to head the Pension Benefit Guaranty Corporation.
Times have changed.
The firm has a total of more than $1 billion in short-term debt coming due in early 2009. Broadway’s said to have hired Citigroup to help restructure its finances (incidentally, that’s the same firm a desperate Macklowe Properties hired not so long ago to do the same). Now, the firm plans to sell its strongest properties, acquire some joint-venture partners and raise a $200 million fund to buy back debt. So far, Broadway has sold one building—Houston’s One City Centre, and is reportedly taking bids on 1615 L Street in Washington and 200 State Street in Boston.
While Broadway, which declined to comment for this article, might well be bullish, as far as its New York properties are concerned, the prognosis appears to be mixed. The Daily News building at 450 West 33rd Street was put on the market earlier this year, and then quietly withdrawn, presumably for lack of a good buyer. Meanwhile, the firm has been engaged in a lengthy and well-publicized effort to recapitalize a portion of 340 Madison Avenue. So far, no deal.
To finance the purchase of 280 Park Avenue, Broadway borrowed $440 million from Wells Fargo Bank. It’s unclear when that financing is due, but the firm is said to have a 50 percent Arab partner, which makes that purchase somewhat more secure.
If Broadway does find itself hard up, that’s bad news for tenants, according to Peter Riguardi, president of Jones Lang LaSalle’s New York office.
“They’re well liked,” he said. “Clients of mine that are in their buildings are just very pleased with the type of services and attention they get. As far as their investments and when they made them and how leveraged they are, I’m not really close enough to know much about that.”