Don’t cry for Kambiz Shahbazi, at one time one of the most aggressive buyers of commercial property in and around Boston. His former 5 million-square-foot portfolio may be in shambles, but he’s currently scouring the market, looking for something else to buy with someone else’s money. 

When times were good, Shahbazi assembled a mostly suburban, Class B portfolio that reached 5 million square feet. Some of it has already fallen to foreclosure, while other buildings are overleveraged and worth far less than the debt on them.

When it’s all said and done, Shahbazi may well lose more real estate in this recession than any other landlord, including New York’s Broadway Partners, late owners of the John Hancock Tower and Waltham’s Bay Colony Corporate Center.

But Shahbazi’s firm, KS Partners, is in fine shape. The company managed to suck millions of dollars out of properties now teetering on the edge of foreclosure. His strategy of putting other people’s money at risk instead of his own, while perhaps unscrupulous, has certainly proven successful.

King Of Class B

Shahbazi, one crowned an emerging “empire builder” in area real estate by local media, made a killing during the market’s boom years by buying up properties few other investors wanted: 1980’s-vintage Class B office and R&D space in secondary suburban markets. He was a big player in Billerica, Chelmsford and Wilmington. He bought up aging office parks in Braintree and Dedham. And he did much of it with degrees of leverage that look obscene in the post-Lehman world, leverage that has largely shielded Shahbazi’s firm from the nasty commercial downturn currently battering the industry.

Banker & Tradesman conducted a portfolio-level examination of 3.6 million square feet of Shahbazi’s properties believed to have problems with performance or excessive degrees of leverage. It included three deals, totaling 2 million square feet of commercial space, financed by commercial mortgage-backed securities (CMBS), and six other acquisitions, covering 1.6 million square feet.

The investigation revealed Shahbazi’s firm took out far more money from those properties than it ever put in, mostly through leveraged acquisitions and timely refinancing. Shahbazi excelled in riding values upward and extracting profit from real estate through transactions, rather than operations.

Tidy Profit, Disastrous Deals

KS Partners’ three CMBS deals covered 2 million square feet of commercial space, and totaled $156 million in mortgage debt. All three deals are now either in default or foreclosure. But leverage, payments from equity partners and a condo conversion at one Boston property put KS Partners in the black by $42.5 million.

Those properties financed by whole lenders haven’t hit the auction block yet, but they’re now worth far less than the debt they carry. That group, which totals another 1.6 million square feet and $187 million in debt, includes major acquisitions in Boston, Wilmington, Newton, and Dedham, as well as a rather disastrous-looking 2007 suburban refinancing by GE Capital.

In three of the six acquisitions in this group, Shahbazi’s firm took more cash out of the properties it bought than they put into them, and two others were leveraged above 95 percent, putting Shahbazi on the hook for only a small equity stake. The GE deal alone netted KS Partners $21.3 million, thanks to generous underwriting and exploding commercial values.

Same Ol’, Same Ol’

Even if Shahbazi lost all those properties, his firm will have still netted nearly $52 million – simply by buying, and potentially losing, 3.6 million square feet of commercial space.

KS Partners’ chances of staying in its buildings will largely depend on the firm’s willingness to sink new capital into its properties, something the company hasn’t demonstrated a great appetite for. Shahbazi does have breathing room in these deals, though, as GE has been reticent to do anything that would affect the book value of its commercial loans.

But Shahbazi isn’t content to sit back and watch his empire crumble. He’s seeing what other investors see – the chance to scoop up distressed commercial properties at historically low prices. To that end, he has raised a new equity fund – “A couple hundred million,” one source told Banker & Tradesman and is now actively scouring the area, looking for new properties to buy.

His first post-bust acquisition, a 275,000-square-foot foreclosed office property at 75 Sylvan St. in Danvers, is reportedly under agreement for $11.75 million.

According to an industry source, it’s an all-cash deal.

Through a spokesperson, Shahbazi declined to comment on this story.