The Great Recession is taking a toll on some of the biggest family names in Boston development.
The latest victims are the Leventhals, the first family of Hub real estate who helped transform downtown Boston in the 1960s, 70s and 80s from a dreary backwater to an urban jewel.
Of course, as they grapple with an unforgiving economy and wrenching real estate downturn, the Leventhals are far from alone.
The Rappaport family, which also left its imprint on modern Boston through Charles River Park, is facing its own challenge, with the specter of default looming over its suburban office properties. And we can’t forget John Hynes. Son of newscaster Jack Hynes and grandson of a mayor pivotal in Boston’s comeback, the downtown tower builder is now caught in the middle of the Filene’s redevelopment debacle.
“It’s hard to find a place to hide,” said David Richardson, partner at McCall & Almy, of this brutal real estate downturn. “People bought these buildings over the past five or 10 years and in some cases paid a lot more money for them based on assumptions that turned out not to be achievable.”
A Charmed Existence
Still, the fall from boom-time glory is particularly startling with the Leventhal real estate dynasty, which appeared incapable of making a major misstep after decades of mostly unblemished real estate success.
For a family in the rough-and-tumble development business, the Leventhals have led a charmed existence since Alan’s father, Norman, co-founded Beacon Properties Corp. in 1946 and really began to make his mark on Boston’s cityscape in the 1960s.
The family celebrated a series of triumphs over the next few decades – Rowes Wharf, the Post Office Square park and garage and the renovation and transformation of South Station, among others.
In 1997, Beacon Properties Corp., at the time led by Alan Leventhal, made a killing in a $4 billion merger with rapacious office market investor Sam Zell’s Equity Office Properties, turning over a portfolio of 23 million square feet of commercial space.
In 1998, Alan Leventhal was back in the real estate game with Beacon Capital Partners, a company he founded with an initial capitalization of $420 million.
A canny investor, Leventhal began to make his mark with some blockbuster real estate deals.
The zenith came in late December, 2006, when Beacon Capital unloaded the 60-story Hancock tower, along with a couple of smaller buildings nearby, for a stunning $1.3 billion.
That was after paying just over $900 million three years before for the dazzling blue centerpiece of the Boston skyline.
As it turned out, it was not a moment too soon, as the roaring sales market for office towers was poised for an historic deep freeze.
Bad Timing
If the story had stopped there, we’d all be congratulating Beacon Capital and Alan Leventhal on their miraculous timing, having wriggled free from the coming commercial real estate train wreck with just minutes to spare.
But it didn’t. Beacon made one last – and now very fateful – gamble of its own.
About six weeks after the Hancock sale, in February 2007, Beacon bought a $6.3 billion portfolio of office towers and buildings in Washington, D.C. and Seattle. Included were a number of buildings Beacon Property had sold a decade before in its landmark sale to Equity Office.
It turned out to be one of the last gasps of what now clearly looks like a bubble in tower prices, one that rivaled the run-up seen across the country in home values.
“His timing was not perfect,” McCall & Almy’s Richardson notes.
Beacon last month missed a $1.6 million mortgage payment on $430 million in debt secured by one of its prize holdings, the 76-story Columbia Center in downtown Seattle. The skyscraper was the flagship of that $6 billion portfolio Alan Leventhal – and Beacon – so eagerly snapped up back in February 2007.
It probably does not help that 40 percent of the skyscraper is now empty – a problem expected to worsen, with Amazon.com expected to bail out of 175,000 square feet.
There are other signs of trouble as well.
Beacon is underwater on two major London office complexes it acquired over the past few years. It recently restructured the debt on one, but still faces a Moody’s warning of a potential default.
And in San Francisco, Beacon halted construction midstream on a 27-story downtown office tower in the fall of 2008, with no signs of life since.
Still, Leventhal has proved adept at pulling in cash from investors over the years, having raised billions for a series of Beacon funds.
Certainly looks like time for another Beacon fund, now doesn’t it?
