BASKING RIDGE, NJ-Boston’s iconic 62-story John Hancock Tower provides a telling example, on a very large scale, of the kinds of value-added strategies that have highlighted the commercial real estate industry in recent years. Details of that strategy, as carried out by Normandy Real Estate Partners of Morristown, NJ, were outlined by executives of the firm at the March luncheon meeting of ICREW NJ at the Dolce Hotel here.
“This was a classic loan-to-own opportunity, but one that needed a lot of things to go in our direction,” said Raymond P. Trevisan, a Normandy principal. “We look for buildings that are half-vacant, with debt coming due, and with other complex problems. In 2008-2009, there were few opportunities that made sense, so we focused on buying debt.”
The basic story, as outlined by Trevisan and associate Eric Rubin, is that Normandy and Five Mile Capital Partners acquired the John Hancock Tower at a foreclosure auction in mid-2008 for $660.6 million, or about half of its 2006 price. The turnaround plan was to buy pieces of the mezzanine debt and take control through foreclosure if the owner defaulted. The latter occurred in 2009 when Broadway Partners defaulted on $472.1 million in secondary loans. At the foreclosure auction in March of that year, Normandy and Five Mile were the sole bidders.
“A lot of things went in our direction,” said Rubin, noting that the Hancock Tower was part of a larger portfolio. “Ultimately, from an underwriting standpoint, this process benefited from our platform.”
With Normandy and Five Mile in control of the asset, “the fun really started,” said Trevisan. “First, you have to appreciate how important this building is to the Boston area. And in the wake of the building’s problems, one of the first things we had to do was change the perception of the asset,” he continued. “Financially, the previous owner had obvious problems. The building itself was considered old and tired.”
What followed was a strategy to create value, developed in tandem with Cushman & Wakefield. Lobby and common areas were improved, underground parking for executives was created, and Normandy spent more than $40 million for improvements. With perceptions beginning to change based on aesthetics, what happened next was crucial.
“We did two 30,000-square-foot, full-floor deals,” Trevisan said. “That was critical; that put the building back in business.” They followed that up with a 270,000-square-foot lease deal with Bain Capital.
The turnaround concluded, the building was put up for sale, launching an active bidding war for the newly repositioned asset. In December, Normandy sold the John Hancock Tower to Boston Properties for $930 million. And Normandy was retained as manager—“a huge win for us,” Trevisan said. “We had a significant number of hurdles, but with a lot of hard work, everything fell into place.”
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