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Broadway eyes reincarnation – into US apartment sector

Scott Lawlor, founder of the troubled private equity real estate platform, will roll out a residential strategy ‘imminently’. But he insists to the New York Times Broadway’s problems were bad timing and the severity of the crash – not leverage.

The founder of Broadway Partners, Scott Lawlor, is eyeing his next property investments telling the New York Times his firm will roll out a residential strategy “imminently”.

Broadway this year became a poster child of the real estate bubble after it was forced to hand back numerous office properties it purchased at the market peak after its equity was wiped out amid rapidly falling prices.

We’ve been bidding on them and came close on a few, but haven’t really gotten done on one yet, mostly because there’s always been someone willing to pay more. But that’ll change. One of the problems is that there are not as many deals as people who want to buy.

Scott Lawlor, founder of
Broadway Partners

However, speaking to the Times’ Square Feet column, Lawlor said the firm was “getting organised around the apartment sector”, and was expected to start buying apartments, or loans backed by apartments in early 2010. Lawlor suggested the firm would also look to busted condo deals, possibly in Florida and Las Vegas, as well as apartment transactions across the Sun Belt.

“We’ve been bidding on them and came close on a few, but haven’t really gotten done on one yet, mostly because there’s always been someone willing to pay more. But that’ll change. One of the problems is that there are not as many deals as people who want to buy,” Lawlor told the Times.

Broadway has been consumed with firefighting its portfolio since the collapse of Lehman Brothers last September, and has handed back the keys on key assets, including the Boston skyscraper, the John Hancock Tower.

Lawlor said the “24/7 all-consuming firefight” was over for Broadway, although he conceded there was still “some work to do” in capitalising parts of the portfolio. When asked the value of Broadway’s portfolio, Lawlor said: “Who knows. It’s about 11 million feet, 15 properties.”

Lawlor though rejected the idea that Broadway employed too much leverage at the height of the market saying “as a matter of practice [it] was average” for transactions closed in 2005 to 2007.

The timing of the market cycle and the severity was problematic.

Lawlor

Not to justify anything, but what happened was so severe that basically any commercial property in North America that used more than 50 percent debt, the equity’s wiped out.” He added the firm was “unhappy and disappointed” at having handed back key offices to lenders, but the “timing of the market cycle and the severity was problematic”.

The collapse in real estate values coincided with Broadway’s own debt maturities, he said. “On some of the [properties], we decided the right thing to do was mail in the keys. It’s tempting to hang on to assets no matter what, but throwing good money after bad is not a good business strategy.”

Broadway’s new strategy will employ 60 percent loan-to-value, with 10-year fixed-rate debt, Lawlor said, generating possible returns of 8 percent to 9 percent. “Rather than swinging for the fences, we’d rather just hit a bunch of singles and doubles,” he said.