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Broadway hands back three ex-Beacon properties to Lehman

The New York-based private equity real estate firm has restructured $459m in mezzanine loans with Lehman Brothers, which had been due in May. However it means handing back three properties and giving full control of seven others to the bank. The properties were purchased from Beacon Capital in 2007.

Broadway Partners has been forced to hand back three properties to Lehman Brothers after restructuring $459 million of mezzanine loans with the bankrupt bank.

The New York-based private equity real estate firm has also relinquished full control of another seven properties after failing to repay the debt when it came due on 11 May. All the properties were part of a 25-office portfolio originally bought from Beacon Capital in May 2007 for a rumoured $5 billion.

Lehman Brothers provided two mezzanine loans valued at $321.9 million and $137.6 million in 2007, secured against 10 of the ex-Beacon properties, according to legal documents relating to the restructuring.

In a statement today, Broadway said it was in the process of transferring ownership of three of the properties back to Lehman, while it had formed a joint venture with Lehman regarding the remaining seven assets.

The three offices returned to Lehman include 100 Wall Street in New York, Bay Colony Corporate Center in Waltham, Massachusetts and 120 Howard Street in San Francisco.

The joint venture deal relates to seven properties in Los Angeles; San Francisco; Boston; Fairfax, Virginia and Tysons Corner, VIrigina and will see Broadway inject up to $40 million to help pay down the mezzanine debt and “provide liquidity for capital needs” of the restructured loan pools.

As a part of the joint venture, Broadway’s ownership interest in the remaining assets has been reduced to between 25 percent and 50 percent, according to the restructuring documents. The properties affected include 1000 Wilshire Boulevard, Los Angeles; 100 California Street, One Sansome Street and 50 Beale Street in San Francisco; 116 Huntington Street, Boston; One Fair Oaks Plaza, Fairfax, Virginia and Greensboro Park in Tysons Corners, Virginia.

In a statement, Broadway said the capital contribution would be used for “anticipated leasing costs as well as capital upgrades at certain of the assets”.

A spokesperson for Lehman added the bank’s primary concern was “maintaining and, ultimately, increasing the value of the properties”. Broadway founder Scott Lawler said the restructuring “takes care of all of Broadway’s near-term debt obligations in this portfolio for the next three years”.

Broadway was a prolific buyer at the height of the market but has seen the value of its assets plummet and buildings, including Boston's John Hancock Tower, foreclosed on. More than $600 million of equity and debt was wiped out on that deal after Normandy Real Estate Partners and Five Mile Capital Partners won the foreclosure auction for the landmark tower in May.