Light at the End of the Tunnel?

When I asked a colleague recently if he thought there was light at the end of the tunnel for this whole credit crisis debacle, he paused, looked at me calmly and replied, "Yeah, there's a light at the end of the tunnel...and its coming from a train that's about to run us over."

Tongue-in-cheek? Yes.

Truthful? Maybe.

Either way, it hasn't stopped Boston Properties from doing something none of us thought was possible in the current environment last week. Mort Zuckerman's firm obtained a $215 million construction loan to complete a mixed use project currently underway in Boston called Russia Wharf.

Just as you might have suspected, there was no mysterious white elephant to be found, no secret source of capital that the rest of us did not know about. In fact, it took the form of a much smaller deal, where community banks whose legal lending limits aren't big enough to take down the entire loan might pool together and participate with several other financial institutions.

A group of five banks, in this case, led by New York Mellon Corp. provided the financing. That being said, the terms of the loan are about as tough as they get.

The LTV is only 40% of the estimated $550 million dollar cost.

The term is five years and carries a floating interest rate equal to LIBOR plus 3% annually.

And of course, the loan carries the dreaded full "recourse" provision, leaving Boston Properties fully on the hook if the project doesn't pan out as expected.

Boston Properties had more success winning over lenders because it offered a package with a number of features banks typically like. Most notably, the project was partly preleased by Wellington Management Co., an institutional asset manager, which is set to occupy about 450,000 square feet of office space. Moreover, the project is located on a section of the Boston waterfront that has generated considerable buzz as a promising extension to the traditional financial district.

Possibly the most interesting thing about this deal is the storied history of the ownership. In 2004, Sam Zell's Equity Office Properties Trust obtained approvals from the Boston Redevelopment Authority for a mixed-use project that was to include residential lofts, a hotel and offices. In 2007, Blackstone Group LP acquired the property when it purchased Equity Office and subsequently sold it to Boston Properties.

Want the full details? Check out the WSJ article here.