Credit Crunch Gives Blue Chip Builders the Blues in Boston, Philadelphia

As if more proof were needed that the lending environment is hammering even top-of-the-line development, project backers in Boston and Philadelphia have acknowledged that the capital markets crisis is forcing them to put some of those cities’ showcase projects on hold. The developers of the $700 million mixed-use redevelopment of the Filene’s department store site in Downtown Boston are calling a time-out on construction because they have been unable to secure the necessary debt. As reported late Thursday by the Boston Business Journal’s Michelle Hillman, the project’s lead developer, John Hynes III, confirmed the delay during a panel discussion at Boston College. The publication has said previously that Hynes was able to assemble all but $50 million of the $400 million in debt necessary to keep building. Lenders were reluctant to fill the financing gap even though 25 percent of the project’s office space and three quarters of the retail space are pre-leased. That might delay completion of one of Boston’s premier projects, formally known as One Franklin Street. Plans call for 150,000 square feet of retail, a 250-key hotel, 500,000 square feet of office space and 125 condominiums. Hynes, who is developing the project with Vornado Realty Trust, could not be reached for comment by deadline. However, Hynes told CPN last spring that Filene’s Basement is expected to occupy the site in March 2009 and the entire project is expected to wrap by March 2011. “It’s more a factor of the greater capital environment and the type of risk and return that capital needs than a story about Boston,” said Rick Cleveland, director of research for Cushman & Wakefield Inc.’s greater Boston office. He noted that although development capital is hard to come by, lenders are still selectively making financing available for big-ticket transactions in Boston. In a deal that became public last month, Kennedy Associates Real Estate Counsel L.P. paid Verizon Communications Inc. $192 million for 185 Franklin Street, a 22-story, 700,000-square-foot office tower in the city’s Financial District. Cleveland said he expects that the project will eventually go forward because demand will be there in the long run. “Boston is going to be very undersupplied (with office space) when we come out of this thing,” he said. At about 7 percent, vacancy in the city’s Central Business District is the lowest of any CBD in the country. And the credit crisis is stalling a premiere office project in another major East Coast city. Brandywine Realty Trust will bide its time before starting work on Cira Centre South (pictured), a $755 million, 730,000-square-foot project slated to go up in Philadelphia’s University City. Brandywine CEO Gerard Sweeney offered the update yesterday during the company’s third-quarter earnings call. Cira Centre South would be the first office tower to start construction in Philadelphia since 2005, when the 1.3 million-square-foot Comcast Center got under way.