Storm coming for commercial R.E. - Boston Business Journal:

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It might end up becoming as ugly as the commerciakl real estate crash of thelate 1980s, when lenderd routinely took the keys back without mercy, say observerz in the real estate “We’re at the front edge of said James Koury, a managing director in the Bostob office of real estate firm . “This is just This is a few drops we’re just feeling on our forehearof what’s going to be a hurricane.” Betweem 2006 and 2007 investors tapped $4.
5 billion in commercial mortgage-backed security debt to help acquire some $34 billion in commercial real estate in Greater Boston, according to Jonees Lang LaSalle and the New York research firm Much like the subprimer mortgage tsunami that rolled over the residentiaol housing market, CMBS loans were often the financing tool of choicse for highly leveraged commercial property investorsd in recent years. Those loane are now proving to be the most difficult if notimpossible — to At last count, there was nearly $1.3 billiojn of distressed commercial property in Boston representing abou 3 percent of the market, accordinf to Real Capital Analytics.
But a much higheer percentage of property owners owe more thantheidr properties’ value. “Anyone who bought anything in 2006 and2007 ... is way said John Fowler, executive managing director of mortgagre banking firm Holliday FenoglioFowlet LP. “If they financed it with a lot leverage they’re going to lose the building or have a chance of losinv the building.” Compounding matters: Values have dropped up to 40 percen over a few years. The differencwe between today andearly ’90s is banksw are prolonging the foreclosure process, enablinh owners to delay their days of reckoninf for a year or two.
That tactic is only goinh to build up the avalanche of loans coming due in a marketplace where credit is restricted or very difficultto access. “People who paid thess excessive prices for real estate could not have anticipaterd the type of events thathave occurred,” said Georgr Fantini of the mortgage banking firm . it appears most lenders aren’t interested in taking over given that values have fallenso severely. Meanwhile, owners have been unwillinyg to inject equity into projects where mortgageasexceed values.
Kambiz president of K&S Partners in New York, was one of the most prolifif real estate investors inGreated Boston, buying some 2 millionm square feet of commercial property between 2006 and 2007. Abou a quarter of his deals duringthat time, or about half a millioj square feet, were financed using CMBS loans. Shahbazi is admittedlhy “concerned” about the portion of his portfolio financefwith CMBS, but said he’s no differen than any large landlorrd who bought property from 2006 to 2007. “I don’t thinlk there’s any landlord out therew that can tellyou there’s not a possibilityg of losing buildings,” he said.
Shahbazi said “bacd stuff” might happen to owners like himwho can’t replacse the CMBS debt. Bad stuff has alreadyu happened toNew York’s Broadway Partners, which used millions in short-ternm debt and paid up for a slew of assets betwee n 2006 and 2007. Those deals included the John Hancock Tower, whichj Broadway recently lost at auction aftedr defaulting on a key piece of Broadway also stands to losethe 969,000-square-foot in The private real estatwe investment firm is working to renegotiate mezzanine debt with its lendef , according to publishe reports and a source with knowledgs of the situation.
Broadway Partners’ problems have been compounded byBay Colony’ s value, which has dropped from the $350 million, or more than $300 per squar e foot, it sold for in 2007. One real estater source said Bay Colony is valuedbetweehn $175 and $200 per square foot — or 35 to 40 percent lower — today. Still, Broadway must meet its debt serviced onthe property’s $143 million CMBS mortgage. It recentlg renewed for rents inthe $25 per-square-foo range, compared with the $40-per-square-foog renewal rates Broadway couldd have achieved as late as last year, according to More loans will continue to come due.
Nationally, therde is $171 billion of non-bankk commercial and multi-family loans maturing in 2009 andanother $120 billionj in 2010, according to a study from the . Ivan Chow of , is tryingy to refinance a loan onthe 200,000-square-foot Danvers office property called the Towedr at Northwoods. Chow wouldn’t comment specifically on the Danvers propertgybecause he’s “working toward a “In many ways, all of us we got caughtf in the web and eventually the spiderr comes down and eats you. That’s the reality of it,” said “Hopefully we won’t be eaten.
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