Even Iconic buildings can't escape the credit crunch.
Boston's Hancock Tower, New England's tallest building, is facing foreclosure
Posted by: Prashant Gopal on February 10
It looks like the next wave of foreclosures could come in the commercial real estate market. The big news today is that the iconic 60-story John Hancock Tower is scheduled to be auctioned off next month to pay off creditors.
Broadway Partners purchased the tower for $1.3 billion in 2006 and, according to the Associated Press, it's now worth $700 million and $900 million.
Commercial landlords are now facing rising vacancies as companies layoff employees and look for smaller space, or negotiate large concessions when leases come up for renewal. In one instance, Vornado Realty Trust apparently offered 10-free months to a tenant that was threatening to move out of a floor it occupied in One Penn Plaza building in midtown Manhattan.
Things are particularly tough for landlords that bought at the height of the market a year or two ago. The New York Times had a great piece last Friday chronicling the serious debt problems facing investors who bought hundreds of office buildings, part of a portfolio of 573 properties Chicago billionaire Sam Zell sold in 2007 for $39 billion.
Mark Goldman, real estate instructor at San Diego State University, told me today that "a storm is brewing" in commercial real estate. In this new environment of falling rents, rising vacancies and tight credit, it's becoming tougher for landlords to cover debt payments and to refinance, he said.
"Every company wants a prestigious address," Goldman said. "But many of us, whether large businesses, small businesses or individuals, have to reassess when confronted with the economic realities of day. If you just laid off 20% of your people, you probably need 20% less space."