Prepare for the Worse and Hope for the Best.

Commercial real estate in on a rocky, downward spiraling road with few directional signs.

We all know that for many years a great number of "investor buyers" with little to no experience and without total regard for even common sense due diligence grossly over-paid for some properties.Compounding the matter was that many banks and financial institutions granted mortgages to these over-priced investments.

Now most of us are anticipating the next tidal wave which will the the eventual foreclosures of many of these prime and not so prime assets.

A big one was announced last week when Broadway Partners handed back the 969,000 SF Bay Colony Corporate Center in Waltham (see photo above) along with two other properties one at 120 Howard St in San Francisco and the other at 100 Wall St, NY City to Lehman Brothers Holdings which is now in federal Bankruptcy court.

According to some sources they handed back the properties rather than seeing them foreclosed. Broadway Partners was also the firm that lost the Hancock Towers several months back. This asset was sold at auction for about 50% of what Broadway Partners paid.

Lehman Brothers Holding,loaned Broadway Partners $459 million as part of Broadway's $5 Billion dollar acquisition spree.

Both Bay Colony Corporate Center( four building on 58 Acres overlooking Route 128) and the Hancock Tower are considered by most as premier properties.

Now what will the Bankruptcy court do? They will probably recommend to the Trustee in Bankruptcy to "liquidate" the Waltham and other assets and probably by auction.

Broadway Partners and now Lehamn and now the Bankruptcy court headache is the tip of the iceberg.

The banks and financial institutions are in a tough spot. If they foreclose and then sell they will be selling in a depressed market. They might be luckly to get 50 cents on the dollar or even less.

Can they hold the "assets" for better days? Many of these prime assets now have high vacancy rates.

What will the state and federal banking regulators do?

In the mid 1980's with the S&L meltdown more than 1,000 banks cwere forced to close. So far we're see less than 100 banks go under in the past 2 years nationwide.

Some banks could be in very deep waters.

I recommend that right now, "Prepare for the Worse and Hope for the Best!"


Bill McInerney