Two towers, two tactics

There was no shortage of buildings changing hands in Boston two years ago, near the height of a commercial property boom. Two of them stick out in my mind today.

One was the John Hancock Tower, the city's most famous building, and rightfully so. The other was One Beacon Street, 34 stories of office space that strikes me as very nice though hardly spectacular.

One thing that connects the two buildings: Alan Leventhal's Beacon Capital Partners real estate investment firm.

Beacon Capital was the buyer of One Beacon in 2006, acquiring the million-square-foot building for $423 million. The same firm was the seller of the Hancock Tower, which was turned over to Broadway Partners as part of a much larger real estate portfolio deal. The tower and a related parking lot went for about $1.3 billion.

What has happened with the two buildings since speaks volumes about different investing styles. It also explains why Broadway Partners is struggling mightily to solve serious financial problems and Beacon Capital is quietly raising a new $6 billion real estate fund for fresh investments.

Beacon Capital has put One Beacon back on the market again and, as the Globe's Casey Ross reported yesterday, it's hoping to attract bids in the neighborhood of $570 million. Nice neighborhood.

Assuming Leventhal bought the building using Beacon Capital's customary financing arrangement - one-third equity, two-thirds debt - he could roughly double his investment in One Beacon over two years. Perhaps he'll get it; I don't really know. But I'm sure Beacon Capital will walk away with an enviable profit.

Nothing dramatic has happened at One Beacon in the past two years. Beacon Capital spent money so the building could become the city's only existing tower certified under the Leadership in Energy and Environmental Design rating system. That put One Beacon, built 36 years ago, at the forefront of the "green" building movement.

Beacon Capital also did a good job leasing nearly all of the building's space, renewing big tenants like the law firm Skadden, Arps and attracting new clients like Boston Consulting Group. One Beacon boasts 96 percent occupancy, though real estate sources tell me it will have a 7 percent vacancy rate by the start of next year if no new leases are signed.

The Hancock Tower was built for drama. For starters, just look at it. Everyone said Leventhal was nuts when he bought Boston's most beautiful tower for big bucks, but then he turned around and sold it to Broadway Partners for so much more a few years later.

Broadway Partners, headquartered in New York, seemed to be buying every high-profile office building in the country at the time. It spent more than $13 billion purchasing skyscrapers between 2002 and 2007, often flipping them for big and fast profits.

Broadway also bought a number of towers near the top of the market, in 2006 and 2007, with the help of short-term debt borrowed from Lehman Brothers and RBS Greenwich Capital. That became a big problem once real estate debt markets froze last summer. At the moment, no one is stepping up to refinance that kind of debt.

Broadway bid aggressively to buy the Hancock Tower near the height of the market and borrowed heavily to make it work. A long-term first mortgage for $640 million is piled on top of short-term mezzanine financing of $472 million, according to a real estate executive with access to the numbers. All in, call that $1.1 billion of debt.

But what is the Hancock Tower actually worth at the moment? The executive with the debt figures also provides these numbers: The Hancock property generated gross rents of $93.2 million last year, when expenses totaled about $43.8 million. That left operating profit of $49.5 million.

Here's why those numbers matter: Real estate investors buy property priced to earn a specific rate of return on capital from expected rents and other income. The better the property, the lower the rate of return investors will accept. Ask them to take 5 percent and they will want to own a great building.

For the sake of argument, apply that 5 percent figure to the income produced by the Hancock Tower last year. Do the math and you come up with a value of about $1 billion. That's a big number, unless you already owe $1.1 billion on the same tower.

What if the building was sold for $600 per square foot (Leventhal is asking $570 for One Beacon)? The number, again, is about $1 billion.

None of these figures are cut in stone; they just illustrate the general situation at the Hancock Tower. A spokesman for Broadway Partners, Rick Matthews, said the firm does not discuss details of its business in public and declined to talk about Hancock finances.

One thing Matthews confirmed: The tower's vacancy rate projected for Jan. 1 is about 15 percent, a high number. He called that an unlikely worst-case scenario and said Broadway Partners expected to sign new leases before the end of the year.

Things can change. Today's real estate market is obviously bad, and lenders have run for the hills. That won't be the case forever; it just feels that way.

But One Beacon and the Hancock are towering examples of two very different investing styles.

Where would you rather put your money?

Steven Syre is a Globe columnist. He can be reached at syre@globe.com.