Hancock Tower Sold at Bank and Government Foreclosures Auction

by Donald Hanz on Foreclosure Crisis

The John Hancock Tower has been one of the landmarks of the Boston, Massachusetts skyline. It has been designed by architect I.M. Pei and finance by Broadway Partners.

But just recently, the tallest office building in New England was sold in a bank and government foreclosures auction to Five Mile Capital Partners and Normandy Real Estate Partners for $660 million.

The $600 million paid by both investors on the Hancock Tower is half the $1.3 billion paid by owner Broadway Partners for the property three years ago.

The deal reflected the deteriorating state of the commercial real estate industry in the United States. The Hancock Tower was foreclosed and sold in a bank and government foreclosure auction after Broadway Partners failed to pay on mezzanine loans that it used to fund the property in 2006.

Reis Inc. analyst Chris Stanley said that now that the market has started deteriorating, it will continue to do so at a faster rate.

As of March 20, 2009, bank and government foreclosures in Massachusetts reached 596 units, 153 more foreclosure homes than the previous week which had 443 reported property foreclosures.

Massachusetts foreclosures in 2008 reached 12,000 homes, an increase three times that in 2006.

Nationwide, the delinquency rates for commercial properties are pegged between 1.2 to 1.8 percent. However, real estate market forecasters said that delinquency rates could jump between 3.5 to 5 percent for this year. This could also mean further increase in bank and government foreclosures.

Investors were able to purchase properties using up to 90 percent cheap debt financing during the peak of the commercial real estate industry from 2005 to 2007.

Investors were willing to acquire properties at sometimes unreasonable prices because they were expecting that occupancy and rental rates would increase and they could refinance or sell the properties at higher prices.

They failed to anticipate the crash of the credit market and the subsequent collapse of the country’s economy which led to falling rental rates and occupancies and increasing unemployment.

The increase in bank and government foreclosures may have affected thousands of lives, but they bring opportunities on some, including investors such as Five Mile Capital Partners and Normandy Real Estate Partners.

Both investors have been shoring up cash to acquire distressed properties from bank and government foreclosures.