Travelers Aids Project As Citicorp Stops Funds
A Citicorp-led syndicate has stopped funding a major Boston real estate project, leaving the developer, Travelers Corp., to inject an additional $25 million in equity.
Travelers may also have to provide a further $80 million to finish the complex, sources said. Even before the latest $25 million injection, the Hartford-based insurance company held a $100 million second mortgage on the property, which was built by its real estate development arm.
The financial shuffling comes at a time when more banks are demanding increased equity participation by developers. Moreover, it is one of the most prominent examples of a developer's putting new equity into a project that is under construction.
The project, known as 125 High St., is a multitower office complex in downtown Boston with 1.4 million square feet. It is considered one of the city's most prestigious office developments.
|Best Way to Capitalize'
A spokesman for Travelers confirmed that the company has injected additional capital into the complex, but declined to provide details. "We've chosen to fund using equity because it's the best way to capitalize the project given the current market volatility," the spokesman said.
A Citicorp spokesman declined comment.
The injection of equity was reportedly prompted after banks declaring the loan "out of balance," meaning that the project is not generating the cash flow projected when the deal was crafted.
Roughly $270 million of the $350 million loan has been drawn down by Travelers' development subsidiary. According to one source, the company voluntarily stopped drawing on the loan. Travelers is expected to cover the $80 million shortfall.
The financing troubles of 125 High St. underscore the fact that even prestige "trophy" buildings are not immune from the downturn of New England's real estate market.
Space in the building is renting out at about $25 a square foot, half of what was expected. The value of the property has reportedly dropped 25% to around $450 million.
Local Competitors Bypassed
Citicorp was awarded the financing three years ago in a heated auction that left out local banks from one of the hottest real estate deals in Boston. At the time, vacancy rates were extremely low and the New England Telephone Co. had already agreed to lease over 30% of the office space.
Citicorp's loan has been widely syndicated to a group of foreign banks, including Credit Lyonnais and Sanwa Bank. Most banks, including Citicorp, have an exposure of about $25 million to $35 million. It was not clear whether Citi or other banks with exposure to the Travelers project have put their loans on nonperforming status.
The first 900,000 square-foot tower at 125 High St. opened last winter. Construction on the second 500,000 square-foot tower and a connecting 48,000 square-foot bridge is near completion.
Tenants in Short Supply
But filling the building with tenants is going to be a formidable task, according to Boston real estate experts. The city's vacancy rate already is 17%, and another high-profile development, International Place II, will add another 750,000 square feet to the already glutted market when it opens in 1993.
Keyport Life Insurance Co. recently signed a lease for 72,000 square feet at 125 High St., but the company is believed to be paying no more than $25 a square foot for the space. Travelers has a huge $16 billion real estate exposure, 25% of which is said to be in trouble.
