BROADWAY Partners, the United States real estate fund that has bought more than US$15 billion of office buildings since 2000, has sacked 14 of its 200 staff as the lack of debt financing slows investments.
The company, owner of 100 Wall St in New York and the John Hancock Tower in Boston, will probably close its new Paris office, said Jonathon Yormak, a Broadway principal. Four of the 14 employees let go held the post of vice president or higher, with the remainder being administrative and support staff, he said.
The job cuts are due to "general market conditions," Yormak said in an interview with Bloomberg News. "Transaction volume is way down."
Real estate deals have dropped this year as demand for commercial mortgage-backed securities withered and financing costs rose. First-quarter sales of Manhattan office buildings fell to the lowest since 2005 and investors including New York developer Harry Macklowe who borrowed large amounts to buy properties are facing repayment challenges.
Founded by Chief Executive Officer Scott Lawlor in 2000, Broadway Partners had been reaping the gains of the recovery in the US commercial real estate market until commercial credit was hit by last year's collapse of the residential subprime mortgage market.
Yormak said the company, which raised US$640 million for its current fund, hasn't had difficulty refinancing the short-term debts it used to buy more than US$8 billion of properties, including the Hancock Tower, last May and in December 2006.
"We have no financing due before 2009," Yormak said in an interview at his office in the Seagram Building on Park Avenue in Manhattan. "Some of our debt was extendable. You pay a fee and you extend it." Yormak said Broadway Partners has extended or expects to extend repayment deadlines for US$1.5 billion of mezzanine loans used in the purchase of two groups of buildings from Beacon Capital Partners LLC. The loans contained extension rights.
Of the US$1.5 billion, US$724 million was scheduled to come due on January 6 this year but has been extended until January 2009, Yormak said.
The remaining US$793 million was scheduled to come due in August and Broadway expects to extend that to next year as well.
Broadway put three buildings up for sale recently to help pay down debt, Yormak said.
Broadway Partners may sell stakes in some assets to meet debt repayment obligations next year. The firm also has capital on hand it can use.
Value-add real estate funds such as Broadway's typically seek returns in the low to mid-teens by buying properties and making improvements.
"We're going to continue to strive to meet and exceed those target returns," Yormak said.
"We like our basis (total cost) on all the assets we acquired."