Spitzer’s $180M D.C. Buy Offers Glimpse of the Future

Last week’s $180 million sale of a Washington, D.C., office building made national headlines because Eliot Spitzer worked on the deal. But the trade was more noteworthy for what it says about things to come in commercial real estate investment. Forced to resign as New York’s governor a year ago because of a scandal, Spitzer worked to structure the transaction with his father Bernard, a long-time developer and investor. A company controlled by Bernard Spitzer bought 1615 L Street, a 418,000-square-foot office building located four blocks from the White House. The seller, Broadway Partners, has encountered much-publicized difficulties tied to debts incurred from its aggressive acquisition strategy. In 2006, the firm paid Beacon Capital Partners $3.3 billion for a 10-building portfolio of trophy assets that included the John Hancock Tower in Boston. Broadway Partners obtained some $1.5 billion in mezzanine financing from Lehman Brothers Holdings and RBC Greenwich Capital Markets to secure the deal, but has struggled to repay the debt. Broadway Partners’ reversal of fortune also indicates the circumstances that will likely generate the first wave of investment sales once the floodgates finally open. In recent months, Broadway Partners has been selling assets in a bid to pay down its debt. Late last year, the firm garnered $181.4 million from the sale of another building purchased from Beacon when Washington Real Estate Investment Trust bought 2445 M Street, a nine-story, 290,000-square-foot office tower, in Washington. And last fall, Broadway Partners sold Citigroup Center, a 48-story tower in Downtown Los Angeles, to an affiliate of Hines. The sale price was later reported at $280 million. As the number of deals involving distressed assets or debt-burdened owners grows, hammering out the terms will demand an extraordinary degree of give-and-take from lenders, buyers and sellers alike. “There were multiple players and many pieces to this jigsaw puzzle played out in a financial marketplace in turmoil,” commented Jeffrey Moerdler, legal adviser to Bernard Spitzer, in a statement. Moerdler is head of the real estate practice for the New York City office of Mintz Levin Cohn Ferris Glovsky and Popeo. Meanwhile, Spitzer is the rare investor testing the investment market at a time when the absence of reliable valuation makes most buyers generally unwilling to buy properties. Only four other buildings of any property sector have traded in Washington since Jan. 1, according to Real Capital Analytics Inc. In a statement released last week, Eliot Spitzer hinted that his father’s company is prepared to make more bold, forward-looking moves: “It is . . . a good time to pursue prudent long-term investments in prime locations.”