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Weekly Thoughts by Jason S. Weissman for the Week of February 22, 2010

Jason S. Weissman

Founder and Principal

Boston Realty Advisors

February is almost over and 2010 seems to be starting off very well. Over the last couple of weeks it seems that we have only discussed the “distressed” component of the real estate business. I have a couple of thoughts on some relevant distressed stories, but I’ll also identify some bright spots in the industry later in this post. But for now:

More Distress, and a show of the times..

In Nantucket this week, TD Bank North held a foreclosure auction for the Point Breeze. They repurchased the asset, via a credit bid of $22M. The existing debt for the development was $40M. See the story in the Nantucket Mirror. http://www.ack.net/pointbreeze022510.html

Last Friday, the New York post reported that One Madison Park is headed for foreclosure.
Click here for article

I identify these two totally unrelated assets, as each is quite high profile in their own right. A trophy Nantucket Island site, and a premier luxury condo project on Madison Park in NY. We will see many core assets in Triple A locations continuing to be foreclosed upon and pricing will continue to recalibrate. This leads me to my next points. The pricing recalibration process is very uncomfortable and painful for owners/borrowers and their respective property lenders. However, once the recalibration process occurs, whether through a foreclosure sale or otherwise (the lender selling the note, etc.) the market can begin to ‘work’ on the asset. In the case of Nantucket, TD Bank North will write down the $22M credit bid ($18M loss) and potentially look for a developer to either purchase all cash or provide new debt on the asset to a better capitalized developer in hopes that this process will bring the asset back to market and get the ‘work’ started.

The ‘work’ affect on the macro market is the following: builders begin to work again, vendors such as brokers, architects, attorney’s, interior designers, etc., can ‘work’ on the sale of the assets to end users. This will allow end users will be able to purchase the assets at the ‘market value.’ My scenario above would be an ideal situation, but unfortunately the process mentioned above is simply taking time, “a cog in the wheel,” as they say. But, we do see solid examples of recalibrated pricing, making the market move again, and getting the industry “working again.”

The Brighter Side:

Bayside Expo Center is "under contract" to UMASS Boston

You may remember that the Bayside Expo Center was lost to foreclosure last spring by Corcoran Jennison Company. The loan was $22M, and LNR repurchased it back by means of a credit bid for $11M. The site is now under contract for $18.7M or 85% of the loan value.

Click here for full story

John F. Kennedy Presidential Library and Museum

We think this is a spectacular site. Given the macroeconomic environment, UMASS is the best buyer. For the City of Boston, it is a shame that this site cannot be redeveloped into a more neighborhood inclusive use, such as housing, public space and neighborhood retail. The waterfront views and proximity to the Harbor Walk and the JFK Library (where I run daily) all make this an incredible place, and I’m not sure that many Bostonian’s know how great it is. Take a look at the JFK Library Website and definitely take a visit --- http://www.jfklibrary.org/ I have said to many people before, Boston could really be a world class, waterfront city---like a Sydney Australia, if our Waterfronts were developed properly. But this is just a thought and a dream for now. For today, it’s a good thing that this asset is trading at 85% of the loan balance. Maybe UMASS Boston will add public spaces (parks and/or museum) and a commercial component to their redevelopment of the site.

View of the Waterfront and the Financial District from the Boston Harborwalk

Story from the WSJ – Commercial Sales Jump

This story references in the national press the sale of the One Brigham Circle Development to AEW, for a 6.5% cap rate!

Click here for full story

We are definitely seeing a pent up demand for high quality, low risk investment grade product. Watch for some strong sub 7% cap rate retail deals in the Boston Market over the next four to six months.

Posted at 02/25/2010 09:53 AM by Jason S. Weissman

Categories: Boston Real Estate, Commercial Real Estate, Lending, Boston Commercial Real Estate, Distressed Debt, CMBS

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