Thursday, April 09, 2009

The Near Future
I went back to re-read and post about this article. I saw that the article is dated April, 1, and almost thought it was an April Fools story. But it is not. The story is amazing, and I can't get it out of my head. A partnership between two outfits called Normandy Real Estate Partners and Five Mile Capital Partners acquired the John Hancock Tower in Boston for $20 million. The partnership acquired the senior portion of $700 million in mezzanine debt for $20 million and and agreed to take over the exisitng first mortgage of $640.5 million.

The property was acquired in 2006 by private equity firm Broadway Partners for $1.3 billion. (Why is it called private "equity" when Broadway used $640.5 million of a first mortgage and $700 million of mezzanine debt and no apparent equity.) When Broadway could not make the mezzanine payments, Normandy and Five Mile foreclosed and were handed the keys while assuming the exisitng first mortgage. So, the way I read this article, Normandy and Five Mile acquired a building that sold for $1.3 billion two years ago for $20 million. I want to be a buyer of mezzanine debt. (If figure that if the Hancock Tower has lost 30% of its 2006 value, Normandy and Five Mile still have $250 million in net equity in the property, acquired for $20 million.)

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