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Northland Refinances Hartford 21

By Greg Bordonaro

July 23, 2012

Northland Investment Corp., despite facing significant financial problems with three of its five major downtown Hartford commercial properties, has reached a deal to refinance nearly $70 million in debt it took on to build its Hartford 21 residential and retail tower.

The Massachusetts-based development firm, which has been downtown's largest commercial landlord, has secured a $75 million mortgage from UBS Real Estate Securities for Hartford 21, city and regulatory records show.

The loan proceeds were used to refinance about $70.3 million of remaining debt that Northland took out in 2004 to build the city's tallest residential/retail tower. Hartford 21 stands 36 stories high.

The original $80 million mortgage was provided by Citizens Bank, which hadbeen trying for years to sell off the loan, realty sources say. The Citizens' loan had matured nearly a half dozen times since it was originated in 2004 but Citizens Bank decided to extend the maturity date on each of those occasions.

Now the bank has its repayment in hand.

Hartford 21 is one of Northland's most prized assets downtown. The company developed the $162 million project from the ground up in 2006. Northland has had problems filling the retail section of Hartford 21, although it has had more success lately.

TD Bank recently signed a 10-year, 12,000 square foot lease in the building, which it will use for its regional Greater Hartford headquarters and a branch. The apartment units in Hartford 21 have maintained a strong occupancy rate in the mid-90 percent range.

The refinancing represents a bit of good news for Northland, which has been facing significant challenges on its other major downtown Hartford holdings.

In 2011, Northland lost its 12-story, 290,000-square-foot Metro Center office tower to foreclosure, and the company currently has two other major Hartford properties in foreclosure — CityPlace II and Goodwin Square.

Northland also owns the Crosthwaite and Standard buildings at 242 Trumbull St. and 100 Allyn Street.

Northland did not return a call seeking comment, and a Citizens Bank official declined to comment for this story.

UBS is not holding its Northland loan in its own portfolio. Instead the New York-based banking company has sold off the Hartford 21 mortgage to the secondary market, a common practice in commercial real estate financing that helps boost liquidity in the market.

The Northland loan was packaged into a commercial mortgaged-backed security with about 73 other mortgage loans worth a total of $1.3 billion, according to an investor prospectus put out by UBS in April and recently obtained by the Hartford Business Journal.

Securitization is the process of pooling and then packaging various types of debt, such as mortgages, and then selling it into a secondary market, where there could be dozens of entities that have a say or interest in the loan.

It's a process that garnered significant controversy during the 2008 financial crisis, because many banks were accused of packaging risky loans in large pools of debt and then selling them as highly rated securities.

Securitization can also make things more complicated for borrowers. Once a loan is securitized, borrowers often have strict terms or rules that prevent lenders from reworking the loan until there is a default.

As a result, borrowers often don't know the identity of the institutions that hold their mortgages, making it difficult to renegotiate the loan. Borrowers sometimes will intentionally stop making payments in order to get someone to the negotiating table.

It's a situation Northland is intimately familiar with. All three of Northland's Hartford properties that fell into foreclosure had mortgages that were securitized, and the company didn't have success trying to renegotiate or refinance the loans when they matured.

As a result, Northland defaulted on the mortgages of all three properties.

In its investor prospectus, UBS did not mention any of Northland's foreclosures in Hartford.

UBS did not return a call seeking comment.

In terms of Northland's UBS loan, the $75 million mortgage is a 10-year loan with a 5.449 percent interest rate. It will mature in April 2022 and be interest only for the first 24 months.

The mortgage was placed on the entire Hartford 21 property, which includes 262 residential units, 106,530 square feet of office space, 57,139 square feet of retail space and 818 parking spots, regulatory filings show.

The residential apartments were about 92 percent leased, as of February 2012, while the office and retail space were 66 percent and 32 percent occupied, regulatory filings show.