Yesterday's sale of the John Hancock Tower to Normandy was an interesting market test, with media reports claiming it implied either nothing much or only good things about CRE and CMBS recoveries. A contrarian (and realistic) analysis on the transaction out of Morgan Stanley implies that based on this deal, not all is good in CRE land.
In a foreclosure auction today, the John Hancock Tower - a marquee building in Boston - traded at $660MM to Normandy Real Estate Partners. That same property was appraised for $1.3BN in 2006 and traded for $935MM in 2003. This is VERY negative for commercial real estate. At face, it looks like even top quality assets are down 50% from their peak, but that forgets the value of the financing that Normandy now gets to assume. There will still be a $640.5MM mortgage on the property at a rate of 5.6%.
**The main takeaway: property values are down A LOT more than people think, especially when considering the implied value of financing. Caveat Emptor.**