The Rise and Falling of New York’s Busiest Building Buyer

bdwypartners 2 The Rise and Falling of New Yorks Busiest Building BuyerTwo years ago, Broadway Partners was an empire on the march.

They owned some of the country’s best Class A office properties—the 62-story Aon Center in Los Angeles, One City Centre in Houston, 522 Fifth Avenue in New York—but they were always searching for more. Led by founder and CEO Scott Lawlor, the faster their real estate empire grew, the faster Broadway scrambled to conquer even more office buildings from California to New York.

Their Macklowe-like strategy: to rake in office properties on highly leveraged loans, wait for rents to rise, and sell the buildings at a profit within two years.

But the market’s crash has left the new kid on the block more bruised than his older rivals. Indeed, the nine-year-old company acquired its taste for risk at precisely the wrong time. They bought 28 office properties around the country in 2006 and 2007, at prices that critics argued were too high even then, in contrast to only nine office properties bought from 2001 through 2003.

“The new players in the industry are the ones who really have been hit the hardest,” said New York City corporate and real estate attorney Edward A. Mermelstein. “Their exposure is just so much greater because most of their acquisitions happened within a short period of time.”

Mr. Mermelstein added that more well-established real estate players had wised up after going through the last few down cycles, since they understand that “once you leverage above 50, 60 percent, you’re possibly going to expose yourself.”

Now, Broadway has defaulted on short-term loans for over a dozen buildings, and two of their properties have been foreclosed. To make matters worse, Broadway’s primary lender for many of these buildings—such as 10 properties, including one in New York, bought on May 15, 2007, alone—was Lehman Brothers. The question now is whether they can raise the necessary capital to pay off their loans and survive.

“There’s no question Scott’s business model was very much living on the edge,” said Real Capital Analytics’ managing director Dan Fasulo. “Obviously, he got stuck without a chair when the music stopped.”

 

SELLING MAY BE THE only way Broadway can raise the necessary capital to pay off their short-term loans, which are coming due for three office properties in spite of a recent deal struck with Lehman, according to Real Capital Analytics: 280 Park Avenue, the Park Avenue Atrium, and the Union Bank of California Center in Seattle (340 Madison is also potentially troubled).

Their current properties are worth only a fraction of what Broadway purchased them for. Although Broadway’s James Hennessy described his timing to buy 500 West Monroe in Chicago in July 2007 for $336.7 million as “ideal,” the property is now worth only $63 million. (Broadway barely avoided foreclosure on the building, which is one-fourth vacant, by striking a deal with lenders, after defaulting on a loan in February 2009.) And 280 Park Avenue—which they bought for $1.25 billion in November 2007, using a $1.1 billion loan—is now worth only one-tenth of what Broadway bought it for: $147 million.