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Northland Facing Latest Deadline In January On $80 Million Loan

By Greg Bordonaro

October 25, 2010

Northland, downtown Hartford’s largest landlord, faces its next big test in January, when the $80 million loan it took out to build its Hartford 21 residential and retail tower comes due.

Since the Massachusetts-based development company opened Hartford 21 in 2006, it has had difficulty attracting office and street-level retail tenants, hampering the buildings revenue stream.

It’s a familiar problem in cities across America but it’s particularly acute in Hartford’s rock bottom commercial real estate scene.

And Northland, which has three of its Hartford properties — CityPlace II, Goodwin Square, and Metro Center — in foreclosure, has been hit hard. The company has already had its construction loan on Hartford 21 modified and extended nearly a half dozen times since 2007, city records shows.

NewAlliance Bank, which established a foothold there last spring, was the first business to open on Hartford 21’s storefront in more than two years. St. Joseph College also recently opened a 35,000 square foot pharmacy school on the property, although classes won’t start until next fall.

But there are still numerous vacancies surrounding those tenants and Northland has been unable to secure a long awaited grocery store.

Meanwhile, officials from Citizens Bank, which financed Hartford 21, declined to comment on reports that they have unsuccessfully tried to sell off that loan to investors.

Northland officials have declined numerous interview requests. The company’s financial health and its plans for Hartford 21 and its other downtown Hartford properties remain unclear.

But a Hartford Business Journal examination of city and court records has found that the company has faced recent pressure on all of its properties.

By mid-2009, the loans on all six of its downtown holdings — totaling about $176 million — were set to mature over the next 24 to 30 months, city records show.

As the company’s CityPlace II and Metro Center properties slipped into foreclosure at the end of 2009 and early 2010, Northland quietly got a reprieve on two of its other downtown holdings — The Standard and Crosthwaite buildings.

Both loans on those properties were modified and extended by lenders until 2013 and 2015 respectively.

But the company’s financial woes also reflect broader problems being felt by commercial landlords across the country.

Declining property values, high vacancy rates, and discounted rents have hit many commercial landlords hard, cutting into revenue used to pay off debt.

To make matters more complex, many commercial loans have been securitized and sold to investors, a process that makes it much more difficult, if not impossible, to renegotiate the mortgage when it comes due.

Northland’s loans for CityPlace II, Goodwin Square, and Metro Center, which are all in foreclosure, have been securitized.

Meanwhile, the company’s other three properties have loans still held by banks, which have agreed to extend the maturity dates.

“We have successfully negotiated extensions on each of the loans financed by local banks,” Northland’s Vice President Peter M. Standish said in a written statement to the HBJ. “The loans controlled by special servicers, who have demonstrated little willingness to negotiate, are proving more problematic.”

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.

As a result, borrowers often don’t know the identity of the institutions that hold their mortgages, making it difficult to renegotiate the loan.

At the same time, securities often have strict terms or rules that prevent lenders from reworking the loan until there is a default.

Industry experts said that borrowers sometimes will intentionally stop making payments in order to get someone to the negotiating table.

“You aren’t dealing with someone who owns the whole loan. Instead you are dealing with servicers that represent different groups of investors with different interests,” said Hartford real estate attorney David Hoopes, who is a partner at the Mayo Crowe law firm. “That makes it much more difficult to try to modify the loan.”

When a commercial loan is securitized, borrowers will many times interact with a “master” servicer who collects payments on the mortgage, but they can’t change the terms on the loan. That job is left to a “special” servicer, but many times their hands are tied until there is a default.

In Northland’s case, it stopped making payments on about $80 million worth of loans for CityPlace II, Goodwin Square, and Metro Center in 2009 and 2010. In written statements, company officials have complained about the inability to work with servicers to resolve issues surrounding those properties.

Conversely, mortgages that originate with and remain on the books of local lenders tend to be easier for borrowers to renegotiate, said John Harding, a finance professor at the University of Connecticut School of Business.

“A local lender has a lot more flexibility as well as a closer relationship with the community and borrower,” Harding said. “That usually means they work together because neither one wants to burn that relationship.”

Ultimately, Harding added, banks will do what’s in their best long-term financial interest, but they are hesitant to take ownership of commercial properties.

“That’s not the business they are in,” Harding said.

Waterbury-based Webster Bank modified Northland’s $14 million loan on the Standard Building located on 242 Trumbull St., several times, extending the maturity date to January 2013, city records show.

The Crosthwaite Building on 100 Allyn St., whose $1.1 million loan from Massachusetts-based Eastern Bank was due to mature this year, got a modification in March. The new maturity date is 2015, city records show.

Hartford 21, whose $80 million construction loan from Citizens Bank has been modified about six times, was due to mature Feb. 3. That loan was extended to the end of January 2011, Standish wrote in his statement.

Despite landing a NewAlliance Bank branch and St. Joseph College’s School of Pharmacy, there’s still plenty of retail space available at Northland’s Hartford 21 building.