Northland's Metro Center in Hartford Repossessed By Lender
Kenneth R. Gosselin
January 15, 2011
In the strongest sign of trouble yet for greater Hartford's largest commercial landlord, Northland Investment Corp. has lost to foreclosure the first office tower it purchased in the capital city the late 1990s.
Northland lost Metro Center One to a repossession by lenders, which raises questions not only about the health of the Newton, Mass., real estate firm but about how much of a force Northland and its chairman, Larry Gottesdiener, will continue to be in the city's revitalization.
The 12-story tower on Church Street, with an attached parking garage, was taken over earlier this month by the mortgage servicing company that Northland had been negotiating with since the property fell into foreclosure 18 months ago.
"The mortgage on Metro Center matured in 2010," said Peter M. Standish, senior vice president at Northland. "Unfortunately, the Texas-based special servicer representing the bondholders [on the mortgage] was unwilling to negotiate an extension in good faith. Given the illiquidity in the marketplace, alternative financing was not available."
Berkadia Commercial Mortgage, the foreclosing entity, couldn't be reached for comment Friday.
Gottesdiener has long put forth a vision of Hartford as a "24-hour neighborhood" in which people "live, work, eat, drink, shop and play." He built the 36-story Hartford 21 apartment high-rise, which opened in 2006. But he was forced to close the old Goodwin Hotel in 2008, and two of his downtown buildings — CityPlace II and Goodwin Square, where the hotel was located — are in foreclosure.
News of the repossession came on the same day that commercial real estate services firm CB Richard Ellis announced a troubling office vacancy rate in Hartford: 25 percent, up from 16 percent a year earlier. The amount of unleased space is expected to rise higher this year, according to CB Richard Ellis.
City officials said it's not unexpected that the deep recession would spark troubles, even for well-positioned real estate firms. Northland remains committed to the city, they said.
"We've just completed working out the details of a grocery store," David B. Panagore, the city's chief operating officer, said. "They haven't lost interest. They are still very active in putting the pieces of the pie together."
Panagore was referring to a full-service grocery store that would open this spring in street-level space on Asylum Street in the Hartford 21 complex. Northland spent $2 million outfitting the space for that store, and the city is adding $300,000 in financing.
Gottesdiener was ebullient when his firm bought Metro Center at the depressed price of $10 million — including the parking garage — in 1997. He declared then that the building would be his beachhead to a market where he would execute a grand plan. And over the next decade, he made it happen, not only with downtown Hartford buildings but also with thousands of apartments in Enfield and Manchester, which Northland still controls.
Northland also co-managed the XL Center and Rentschler Field for a time.
The financial problem at Metro Center stemmed not from the purchase but from a $25 million mortgage Northland took out on the building in 2000, ratcheting up the debt.
On its face, the building does not appear troubled. Built in 1986, it is about 80 percent occupied, with Lincoln National Corp., its flagship tenant and the Connecticut Business and Industry Association occupying 11/2 floors.
Lincoln renewed the lease in 2007, downsizing by two floors. But local commercial real estate experts say leases are starting to expire in the building, and finding new tenants will be a challenge in a weak office leasing market.
Some observers said Friday that the repossession could be a strategic move by Northland.
"They bought this building and put debt on it based on an income stream," said Bob Martino, a commercial real estate attorney at Updike, Kelly & Spellacy in Hartford. "Now the stream can't justify the debt on it. Perhaps they are saying, "We're going to cut our losses on this one."
In effect, Northland already has taken a profit on the building, by taking a mortgage at much more than the purchase price. So passing the building back to the bank could be a good move if the building is now worth less than the debt, depending on tax calculations. If that's true, "it would be a financial home run for them," one observer said.
Either way, the repossession is a bad sign not just for Northland but for the city. As with the residential market, the effects of commercial real estate foreclosures ripple through the market. They can push property values of other office buildings down. If the buildings are not well leased, they can be sold for less than what they might have been worth otherwise, Martino said.
The outlook for finding tenants still remains bleak. Historically, Hartford hasn't attracted a lot of tenants from outside the market, so there has been intense competition for tenants already in the city. Bank of America's Connecticut headquarters is moving from the 777 Main Street tower to CityPlace I in such a move.
In the coming year, 777 Main and Connecticut River Plaza on Columbus Boulevard will be empty.
Metro Center was built in 1986 at a cost of $57 million, and soon was bought for $70.5 million by CIGNA, which later sold it to Colonial Realty for $84 million at the peak of the market in the late 1980s.
Northland's loss of Metro Center was disclosed Friday at the annual commercial real estate outlook presentation by CB Richard Ellis in Hartford. Broker Patrick Mulready, who commented on the repossession in his presentation, said later that the lender had put out a request for proposals to manage the tower.
Mulready said Hartford has not seen many commercial foreclosures, although the number of commercial real estate mortgage delinquencies continues to rise. Unlike the early 1990s, lenders are not pushing to get foreclosures done quickly, Mulready said.
But he added, "At some point, you just can't procrastinate anymore. Now, lenders are losing their patience."
Reprinted with permission of the Hartford Courant.
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