Owners of Hancock Tower seek investors

$350m sought for refinancing of debt

Broadway Real Estate Partners of New York paid almost $1.4 billion for the Back Bay building in 2006. (Essdras M Suarez/Globe Staff/File 2007)

Defying the current slump in the commercial real estate investment market, the New York owners of the John Hancock Tower are looking for someone to make a large investment in the iconic Back Bay building.

Broadway Real Estate Partners, which bought perhaps Boston's best known office building in December 2006, is looking for about $350 million from an investor, to refinance a portion of the large debt it has on the property.

Broadway paid close to $1.4 billion for the mirrored, 60-floor building and an accompanying 2,000-car parking garage. The company has a long-term loan of $640 million on the building and is looking to refinance a second level of debt, held by the financial firm Lehman Brothers Inc. and the real estate investment firm Greenwich Capital Markets Inc.

The offering, for what is known as "preferred equity," is essentially for an investment with the potential for increased earnings based on the revenue performance of the property. The offer is being marketed by Cushman & Wakefield of Massachusetts Inc. and Sonnenblick Goldman, a New York firm recently acquired by Cushman that specializes in such transactions.

"It makes a lot of sense," said John Gorga, president of the investment banking firm Fantini & Gorga. "It's a classic play where someone can come in and buy some of the equity."

Commercial loans have been harder to come by since late last summer, when the subprime residential mortgage market collapsed and triggered a wider shortage of credit. Commercial property sales, which had been setting record after record through mid-2007, have slowed almost to a halt. Still, there is an abundance of investment capital, real estate executives say.

"The reason we're doing this now is there's been a ton of money raised for preferred equity, and it's all sitting on the sidelines," said David Peretz, director of acquisitions for Broadway Partners.

"There's a lot waiting to be placed that will have a keen appetite for this opportunity," he said.

Marketing started quietly late last week, and interest has been high, said Rob Griffin, president of Cushman & Wakefield of Massachusetts. He puts the value of the Hancock offering equivalent with investing in commercial space for $500 per square foot. Some buildings sold for more than $700 a square foot in the bull real estate market of the last few years.

"You could not find a better position to be in in one of the top three buildings in Boston, when you couldn't replace the asset for $1,000 a square foot," he said.

Besides being a stunning structure on the skyline, the Hancock has potential to grow in value, according to the brokers.

It is 96 percent leased to first-rate tenants such as the John Hancock company, State Street Corp., Marsh & McLennan Cos., and Deloitte & Touche LLP. Average rents in the building are in the mid-$40s per square foot annually, and some of those leases will be expiring in the near future. The projected 2008 rent for top-flight office buildings is in the mid-$70s, and similar space in the Back Bay is scarce, with vacancy rates in the low single digits.

"There's going to be lot of these recapitalizations of assets," said Gorga. "Many of these buildings have value in that they are encumbered by under-market leases."

Broadway bought the building as part of a portfolio from Beacon Capital Partners LLC, which had bought the Hancock complex of three buildings and garage, including the tower, from John Hancock Financial Services Inc. for $910 million in 2003.

In January Broadway disclosed plans to improve the property by transforming the forbidding, windy plaza on the Clarendon Street side into an inviting, enclosed winter garden, with restaurants and shops on two floors.

Some real estate firms that took on large amounts of debt to buy property in 2006 and early 2007, before the market came to a halt, have had difficulty finding alternate financing or partners to help them pay off their short-term notes.

But Peretz said that is not the case in this offering, as the current loan is not due this year. "We'll still be the outright owner," he said. "We're refinancing what's there. But the buyer will have a stake in the Hancock Tower."

Said Gorga's partner, George Fantini: "Their initiative in spite of the ugly capital markets is grounded in reality."

Thomas C. Palmer Jr. can be reached at tpalmer@globe.com.