Landmark skyscrapers going cheap in distressed market

NEW YORK The 40-story skyscraper sits on a prime corner in the country's wealthiest commercial market, steps from the Museum of Modern Art and a few blocks from Rockefeller Center and Central Park.

It recently sold for $100,000.

The 1330 Avenue of the Americas building -- which sold for close to $500 million three years ago -- was auctioned last month for the minimum to a Canadian pension fund unit after owner Harry Macklowe defaulted on a $130 million loan.

A month before that, the John Hancock Tower -- Boston's tallest skyscraper -- sold at auction for a little more than $20 million. The 33-story Equitable Building in downtown Atlanta is set to go up for auction next month; its owners owe more than $50 million to the bank and have only half of the building leased.

Loan defaults in the worst commercial real estate market in decades have created tens of billions worth of distressed properties across the nation, sometimes forcing cut-rate auctions of landmark skyscrapers. Developers are falling behind on mortgages as tenants leave and can find no financing to cover payments, analysts say.

So they are selling skyscrapers at a drastic discount, with the condition that the new buyer take on the enormous amounts of debt connected to the properties.

"Just imagine in a residential market, if there weren't 80 percent loans available for everyone. If everyone had to buy their houses in cash, the values of houses would plummet everywhere," said Dan Fasulo, a managing director at Real Capital Analytics. "That's happening on a massive scale on the commercial side."

The Hancock Tower and the Sixth Avenue building are the first of a wave of foreclosures and auctions expected in the next year that will slash sale values of formerly prime real estate, analysts say.

Real Capital Analytics, which tracks commercial real estate transactions, counted more than $86 billion worth of distressed properties in the country as of April, more than $6 billion in Manhattan.

The Hancock Tower lost half its market value after its auction in March from former owner Broadway Partners, a partnership of Normandy Real Estate Partners and Five Mile Capital Partners.

The 60-story tower was bought in 2006 by Broadway Partners, which often relied on financing from now-bankrupt Lehman Bros. Normandy and Five Mile took on $640 million in debt, valuing the building at $660 million. It sold at a far steeper discount than the average drop in commercial prices in the Boston area. -- The Associated Press