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.
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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.
Does anyone know if Reggie Samuel played a role in this deal?
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,