The problem with sandcastles is they’re made of sand. The New York real estate firm Broadway Partners is learning that lesson now, in rather spectacular fashion.

Broadway lost the John Hancock Tower earlier this spring after defaulting on the mezzanine debt on its $1.3 billion Back Bay trophy. That allowed Normandy Real Estate Partners and Five Mile Capital Partners to swoop in and steal the building at a steep discount.

Now, Broadway is scrambling to keep another local property from teetering into foreclosure. All eyes are on the Bay Colony Corporate Center in Waltham.

“Everyone assumes they’re not in a good spot,” one industry player said recently. “You know it’s coming,” another said. “It’s understood that Broadway had a very similar structure for most of their deals.”

That structure involved high leverage, thin layers of equity, aggressive underwriting, and short time horizons. When it worked, this approach allowed Broadway to take control of several assets, sit on them for a short period, and then flip them with robust returns on their small cash investment.

At Waltham’s Prospect Hill, for instance, Broadway put $59.3 million into a three-building office park. Less than two years later, the property fetched $100 million. The investment firm also turned a tidy profit (in the neighborhood of $20 million) at 200 State St. in Boston, despite selling into the teeth of last year’s Wall Street meltdown.

“For them, it wasn’t about the real estate,” an industry source said. “It was paper.”

The State Street sale marked a tipping point. Frozen credit markets blocked selling as an exit strategy. Real estate values eroded, wiping out the firm’s equity position. The economy’s rapid deterioration slowed leasing and sent rents rushing downward. When Broadway bought the Hancock Tower in late 2006, it bet that it could drive rents up into the $100-per-foot range, and the firm underwrote its purchase accordingly. That bet left Broadway underwater and out of luck.

Broadway now appears to have forestalled a reckoning at one of its other local properties, while a second hurtles toward the brink.

Late last week, Broadway retained control of 10 Post Office Sq. The firm announced that it had successfully refinanced the 13-story, 434,000 square foot property.

In 2006, Broadway Partners had paid Walton St. Capital $108 million for the Class B office building. The deal was underwritten at rents in the $40s, industry insiders say. But now, Class B rents in the Financial District are at $36 and falling, according to Jones Lang LaSalle. According to tenant brokers CresaPartners, deals that do close are doing so at a discount of at least 10 percent off published asking rates. The building is 90 percent leased.

Don’t Forget Those Refi Woes

Developers are having a terrible time refinancing commercial real estate loans. When lenders are making debt available, they’re doing so expensively, and with strict equity requirements.

The refinancing gives Broadway some breathing room – at a price. When it bought 10 Post Office Sq. from Walton St. Capital, it assumed Walton St.’s $65 million senior loan. That note, held by MetLife and secured by the office building, was set to come due at the end of this year. Broadway had the building on the market last fall, but was unable to move the property.

MetLife’s new five-year note is for $53.3 million, down from $65 million. Gramercy Capital Corp. also refinanced its mezzanine loan on the property, reducing its stake from $19.5 million to $19 million. Broadway’s refinancing retired $10.5 million in debt held by the two lenders. But its true capital cost is greater, because it is increasing its equity stake in a building that has seen its value decline. Industry-wide value depreciations have ranged from 20 percent to 40 percent.

These new five-year loans may not knock the building out of the news altogether. Before refinancing its mezzanine holding, Gramercy was aggressively shopping that loan. The firm initially discounted the loan to 80 cents on the dollar, and then, reportedly, offered massive discounts on the debt. It wasn’t able to close a deal. If Gramercy remains an interested seller, though, that mezzanine slice would be an entry point into a struggle over control of the asset.

‘Long Gone’

That’s the drama currently playing out at Broadway’s Bay Colony Corporate Center, a 970,000-square-foot office complex in Waltham.

“Broadway will be long gone,” predicted one local industry source. Falling rents and mounting vacancies have hit the four-building campus hard, and the existing financing on Bay Colony matures this month.

Insurance giant Prudential bought a senior position in the debt on Bay Colony last fall. Eastern Real Estate holds a junior position behind Prudential. The Boston Herald reported last week that Eastern believes they will be able to seize the office park through mezzanine foreclosure, as Normandy and Five Mile did at the Hancock. The wrinkle in that thinking, though, is that plummeting real estate values have sliced into Eastern’s mezzanine position. Some sources say that’s the case; others contend that Eastern remains in the money.

However, sources also say that, even if Eastern has less than a quarter of its mezzanine piece above water, Prudential is willing to let Eastern run the show. That’s because the property has deferred capital needs. Eastern’s money is subordinate to Prudential’s, and any money Eastern sinks into the property to protect its own position only enhances the value of Prudential’s own holding.

There’s a third property to watch, at 116 Huntington Ave. in Boston, though sources believe that building is better positioned than the properties in Waltham and Post Office Square. The secured party on that property is Lehman Brothers Holdings – a firm that’s not in a hurry to bring assets under its control.