Image courtesy of Elkus Manfredi Architects
Prolific commercial real estate lender Bank OZK told investors Wednesday it’s taking a $72 million loss on the construction loan for a Cambridge office tower.
Boston-based Leggat McCall Properties and Granite Properties of Plano, Texas renovated the former Sullivan Courthouse, now known as 40 Thorndike St., into 422,000 square feet of office space and a podium with 48 apartments, many of them affordable housing.
Arkansas-based Bank OZK provided the project’s $300 million construction loan in 2021 amid expectations that brand-new, highly-amenitized office space would beat the COVID remote-work shift. The tower delivered in 2024.
This loan was previously substandard but migrated to substandard non-accrual during the fourth quarter, Bank OZK executives said in the lender’s fourth-quarter earnings call. The borrowers applied $2.8 million in cash reserves, and the bank was curtailing the distribution of remaining money in the loan.
This resulted in the loan-to-value ratio shrinking to 95 percent. The bank is committed to $156.4 million and the balance is outstanding, executives said.
“The project continues to be in active competition and negotiations for a potential tenant for approximately one-third of the building, and that process is now expected to continue, likely to mid-year,” the bank’s fourth quarter report states. “The equity partners have been unable to reach an agreement to provide continued financial support for the project without a signed lease. Accordingly, we are moving to acquire title to the property while the sponsor continues to pursue new equity partners. Under either scenario, we expect to work collaboratively with the sponsor to actively maintain ongoing leasing efforts.”
The bank noted that the tower’s developers were interested in an extension, but an agreement could not be reached with equity partners, resulting in the charge-off. Bank OZK is potentially looking to sell the property.
The 40 Thorndike St. tower is perhaps the most visible vacancy in the Boston office market’s urban core, alongside 575,000 square feet at Hines’ South Station Tower. The overall availability rate in Boston’s 75.2 million square-foot central business district declined 2.2 percent to 22.2 percent in the fourth quarter, according to research by commercial brokerage Savills.
“On the Boston property, the sponsor on that project would have done an extension and put up their part of the required capital to do that,” Bank OZK CEO George Gleeson told investors. “Their two equity partners in that transaction really decided that they were not going to put up more capital until they got a lease. Our rule is, you pay, you stay. You don’t pay, you don’t stay. So when they ask us to give them nine months or six months to work through the lease without making any payments on the loan we just said that’s not the way we operate. If you want time, you have to pay for the time. If you don’t pay for the time, then we’re going to move to resolve the asset.”
Bank OZK is widely known as the nation’s most prolific commercial real estate lender, and was a major provider of construction financing during Boston’s life science construction boom.
The bank had no loans in Massachusetts in 2025 after recording $1.17 billion in loans in Massachusetts from 2021 to 2024 according to The Warren Group, the publisher of Banker & Tradesman.
