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Goodwin Square Loan In Default

Dark Days For Offices

By Greg Bordonaro

March 22, 2010

The real estate woes continue for downtown Hartford’s largest commercial landlord.

With two of its properties already in foreclosure, Northland Investment Corp. has defaulted on its loan for Goodwin Square, the iconic 330,901 square feet property that includes the 30-floor office tower and historic Goodwin Hotel.

Northland has missed multiple payments on the property since January, and its $33 million loan, due to mature in October, is at least 60 days past due, according to Trepp, a New York research firm that tracks commercial mortgage-backed securities.

Northland’s loan, which has been securitized and sold to Wall Street investors, has been transferred to a special servicer, a company that deals with problem loans by restructuring payments or pursuing foreclosure, among other possibilities.

Paul Mancuso, vice president of product management at Trepp, said the special servicer — LNR Partners — noted in January that it received the loan because of “imminent default due to cash flow problems.” The special servicer also noted that workout discussions are underway.

Northland’s monthly payment on the property is about $154,000, Mancuso said, and Citigroup is the lead manager of the loan.

In a written statement, Northland said it’s negotiating with its lender “to produce an extension that will give us time to get a new loan and a modification of the interest rate.”

“Like most commercial real estate borrowers, the lack of liquidity is making refinancing at maturity problematic,” the company said.

The default raises new questions about the financial health of Northland, the city’s largest commercial landlord. The company’s chairman, Larry Gottesdiener, has been a longtime champion of the city and hoped to spearhead its revitalization.

But late last year, two of the six properties the Massachusetts-based development company owns in Hartford fell into foreclosure.

Metro Center, the 12-story office building at 350 Church St., received a foreclosure notice in September, after Northland failed to make mortgage payments since April 2009, according to court records.

A few months later, the 18-story downtown Hartford office tower CityPlace II was hit with a foreclosure notice, court records show. According to the foreclosure suit, Northland took out a loan on the property at 185 Asylum St. in 2006, but defaulted on its payment starting June 1, 2009.

Northland provided the same explanation for those foreclosures as it did for the Goodwin Square default.

CityPlace II and Metro Center each has a $25 million mortgage and the loans for those properties as well as Goodwin Square are due to mature over the next two years, according to Trepp.

That means Northland will need to pay off the balance, refinance the loans, or risk losing the properties in court.

Making the situation more complicated is the fact that the loans on all three properties have been turned into securities. Securitization is the process of pooling and then packaging various types of debt, such as mortgages, and then selling it into a secondary market, where there could be more than a half dozen entities that have a say or interest in the loan.

Securities often have strict terms or rules that prevent lenders from reworking the loan until there is a default. Borrowers sometimes decide to intentionally stop making payments in order to get a lender to the negotiating table, said Hartford real estate attorney Bill Crowe.

It’s a move that became more common during the financial crisis, although new rules established last year allow borrowers and lenders to negotiate earlier in the process, including when there is a chance of imminent default, Crowe said.

Crowe said once a borrower is in default, that borrower can still refinance, but likely would need to raise significant equity to pay down the loan.

Northland acquired the landmark Goodwin Square property from the state pension fund in 2005 for $41 million. The agreement provided Northland with the 124-room, five-story Goodwin Hotel and the 30-story Goodwin office tower adjoined by five-story atrium and an eight-level parking garage.

As the economy began to sour in 2008, however, Goodwin Hotel became unprofitable for Northland, forcing the company to shut its doors. Northland cited losses in excess of $6 million on the hotel since the fall of 2005.

The occupancy rate on the Goodwin Square property, whose major tenants include Pepe & Hazard and Halloran & Sage, was 86 percent at the end of September, compared to 99 percent in December 2008, Trepp data shows.

Northland also owns the 36-story Hartford 21 tower and the The Standard Building, both on Trumbull Street, and The Crosthwaite Building on Allyn Street.

Reprinted with permission of the Hartford Business Journal. To view other stories on this topic, search the Hartford Business Journal Archives at http://www.hartfordbusiness.com/archives.php.
| Last update: September 25, 2012 |
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