John Hancock Tower Sale Scares Commercial Real Estate Market
The sale at auction of the John Hancock Tower in Boston for less than half of the amount it sold for in 2006 is scaring commercial investors and lenders. The loss of half the value for the most iconic building in Boston is bad enough, but the pressure it puts on future commercial loans is worse.
Borrowers in a tight credit market are facing facing 40% down payments to begin with. If commercial values have dropped so much, the ability to get refinanced or roll over loans nearly disappears for many properties even though they are well managed and profitable.
But what does the sale say about the value of outstanding commercial real estate loans made during the credit bubble years? According to Tyler Durden, author of the great blog Zero hedge, the true value of the purchase was much lower if you consider the financing involved. Since the new buyers put up only $20 million of a $661 million deal, or about 3%, while keeping the prior mortgage, the deal’s loan-to-value ratio is about 97%. That may have been a reach even during the boom years but is nothing like the ratio that lenders would accept in a typical real estate transaction today. And the rate on that mortgage is a measly 5.6%. The lenders on that first mortgage should get their money back, it seems. BusinessWeek.
The John Hancock building may be a new symbol of Boston, the problems in the commercial real estate market.
Very funny comparison. However you don't need to pay property tax on Barbies 3 Story Dream House. With the unemployment ...
My wife has actually decided to study for and get her real eatate licence just so we dont ever have ...
I like your analogy in this article. The real estate economy really is like a patient who you cannot ...
Real Estate is hyper-local. Every market is different. Phoenix has already hit bottom and is starting to recover. We have ...
Great to hear that the big boys
are predicting recovery sooner than
most think.
Thanks for the value! 
I agree--good analogy. You have to crawl before you can walk. Right now, at least in Austin, many people would ...
I live in the Philippines and I am glad we are not on the lists... 
I have a few Litograghs of Presidents homes , made by Richard V. Sebring. yr. 1990 Do they have any ...
Comment by Portland Real Estate on 3 April 2009:
That is completely amazing that the prices have dropped that much. That building dominates part of Bostons skyline, I think I even have pictures of it somewhere. To think that it has decreased that much in value over only two years.
Comment by Josh Ragland on 3 April 2009:
Does anyone know if Reggie Samuel played a role in this deal?
Comment by Jon Churchill on 16 June 2009:
I hope the John Hancock Observatory opens up in the Summer or Fall,I mean this summer,Cause THe reason is it used to attract alot of people,And now they want people to go up&look over boston,