The John Hancock Tower, New England’s tallest office building, sold in a foreclosure auction Tuesday for $660 million, about half what the sellers paid three years ago, underscoring the crumbling state of the U.S. commercial real estate market.
The building, a distinctive presence on the Boston skyline, was bought by Normandy Real Estate Partners and Five Mile Capital Partners, investors that had previously snapped up distressed loans on the property.
The building, designed by renowned architect I.M. Pei and officially named Hancock Place, went into foreclosure in January after its owner, Broadway Partners, defaulted on the mezzanine loans it used to finance the $1.3 billion sale in late 2006.
The Hancock building is one of the most widely photographed features of the Boston skyline, rising 790 feet (241 meters) in a skin of blue glass and steel that reflect the surrounding 19th-century buildings of Boston’s Back Bay. The building has about 1.7 million square feet of office space.
Based in Morristown, New Jersey, Normandy Real Estate Partners manages discretionary real estate funds totaling $1.0 billion of equity commitments.
Five Mile, based in Stamford, Connecticut, is an alternative investment and asset management company, with about $3 billion of assets under management.
In June 2008, the Normandy-Five Mile partnership began buying up mezzanine loans with the intention of purchasing the Hancock building. The mezzanine loans, which the partnership bought at distressed prices, were secured by Broadway’s interests in both properties.
The loans gave the partnership the right to become the property’s owner if the entities owned by Broadway Partners defaulted, which they did in January.
Normandy and Five Mile were the only bidders at the auction — part of the foreclosure process — and bought the Hancock building for $20.1 million, $100,000 above the opening bid, plus the assumption of the $640.6 million mortgage. The $640 million mortgage has been securitized into commercial mortgage-backed securities bonds.
The building is 85 percent occupied, according to Reis. The largest tenants include John Hancock and Ernst & Young.
The partnership also acquired 10 Universal City Plaza in Burbank, California, for $10.1 million and the assumption of the $294.75 million mortgage, for a total of $304.85 million.
