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

Several industry experts said that Broadway’s long-term survival remains debatable. “Ultimately, I do not know what their fate is going to be,” said Ronald Solarz, an executive managing director at Eastern Consolidated.

“All his [Mr. Lawlor’s] equity’s gone in his ’06-’07 acquisitions, so there’s only so many cards left they can play to survive,” Mr. Fasulo said.

Since Broadway is a private firm, Mr. Fasulo noted, the amount of reserve capital they have is unknown. But recent events suggest that they don’t have much equity left.

 

THIS PAST JANUARY, BROADWAY defaulted on a $470 million mezzanine loan for the Hancock Tower in Boston with little hope for recouping capital, since two of the tower’s largest tenants had left. New England’s tallest skyscraper then entered foreclosure. It was auctioned off on March 31 to Normandy Real Estate Partners and Five Mile Capital Partners, which already had a stake in the loan, for $660.6 million, less than half of the $1.3 billion that Broadway had originally paid.

According to The Boston Globe, the auction finished within a minute with just one bid—before executives had taken off their suit jackets.

The 1.75 million–square–foot glass skyscraper, overlooking the Boston skyline and the Charles River, is not the only property that has suffered from delinquent loans. Broadway defaulted on $46.9 million in loans for 701 Gateway in San Francisco in February, according to Real Capital. (They had purchased it in March of 2007 for $66 million, or $388 per square foot.) After defaulting on a hefty mortgage for 500 West Monroe in Chicago, they barely skirted foreclosure by negotiating a deal with Transwestern for the loan to be due in 2012. Lenders have even foreclosed on a small former Uptown Bakers on I Street in Washington, D.C., which Broadway bought for $7.6 million in April 2005. The building is now slated to be demolished when it finds a buyer.

They just never got the chance to sell most of the buildings they bought in 2006 and 2007 before the market crashed.

Three weeks ago, Broadway negotiated some breathing room with Lehman Brothers—but the deal suggests that they don’t have much cash left. For the 10 office properties where Broadway defaulted on $459 million in loans in May, they agreed to transfer three properties to Lehman, including 100 Wall Street, and retain a minority stake in seven others. All in all, Broadway committed to pay Lehman $26 million in cash now and pay an additional $14 million later. The loans will now be due in three years, on June 11, 2012.

Though Mr. Lawlor said in a Bloomberg article that this deal takes care of all their debt obligations for the next three years, question marks still hang over 280 Park Avenue (they borrowed $1.1 billion from JV Investcorp Real Estate for the $1.125 billion deal in November 2007); the Park Avenue Atrium (they borrowed $1.053 billion from Lehman for the $1.18 billion deal in May 2007); the Union Bank of California Center in Seattle; and 340 Madison (they borrowed $472 million from Lehman Brothers for the $550 million deal with Harry Macklowe). Real Capital has evaluated these properties as potentially troubled, with all but 340 Madison’s loans maturing very soon.

Broadway still has 15 Class A office properties left, including four high-profile ones in New York City. The only piece of Manhattan real estate that Real Capital has not classified as potentially troubled is in danger of failing anyway, according to The Real Deal; 450 West 33rd Street—bought for $700 million in June 2007, with a $465 million loan from Wachovia—is the headquarters of the Associated Press and Mort Zuckerman’s media empire: U.S. News and World Report and the New York Daily News. Though unattractive on the outside, the 1.62 million–square–foot building is the perfect place for a newsroom, with lower rents than the AP’s former Rockefeller Center space, and one of eight office properties in Manhattan that offers over 100,000 square feet of contiguous space on a single floor. Mr. Zuckerman declined to comment on whether he would be interested in buying up the building.

 

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