A warning for Boston?
Back in July, Harry Macklowe, a New York developer, razed the Beaux-Arts Drake Hotel in Midtown to make room for the typical NY 40-story, boxy, glass office tower. He had plans to level a row of beautiful townhouses with small, upscale shops to make room for the office building and the massive Nordstrom it was to house.
The townhouses, for now, are still standing. But the Drake's site has been a big sinkhole for over 6 months, with uncertainty about its fate. Now Macklowe is handing control of his properties over to his primary lender, Deutsche Bank, a result of the subprime fallout.
I hate a landscraper, but if Druker destroys a cool Art Deco building and the Public Garden winds up with a pile of dirt, I suggest a Frankenstein-style raid on the Boston Preservation Committee, the body that denied Shreve's landmark status -- and where Druker's daughter **happens** to be a member of the Board of Directors. Smells hella fishy.
Macklowe in Deal to Cede Control
Of Seven Manhattan Properties
By JENNIFER S. FORSYTH
January 31, 2008 4:38 p.m.
Troubled New York real estate titan Harry Macklowe has reached a tentative agreement with his lender to turn over effective control of seven Manhattan office buildings he triumphantly acquired less than a year ago for $7.2 billion, according to a people familiar with the matter.
[Harry Macklowe]
Mr. Macklowe borrowed $5.8 billion from Deutsche Bank to acquire the buildings in a highly leveraged transaction during the height of the real estate frenzy early last year. The debt is scheduled to come due on Feb. 9. But with the real estate debt market greatly constrained by the credit crunch, Mr. Macklowe has found no way to refinance that debt.
This week, he reached a tentative agreement with Deutsche Bank that would give him an extension of the loan but Deutsche Bank would in essence control the properties so they could be marketed and sold. Mr. Macklowe would still retain title, to avoid triggering costly New York City transfer taxes, and Macklowe Properties would still manage the buildings.
Mr. Macklowe's capitulation is one of the most dramatic signs so far of how the credit problems caused by the subprime crisis in residential real estate has spilled over into the world of office buildings, stores, apartment buildings and other commercial property. Numerous other investors who acquired real estate at the top of the market are facing similar problems because values have fallen and they can't refinance debt that they placed on buildings in rosier times.
Mr. Macklowe's situation is still very fluid and the deal could still collapse, people involved said. Even after final details with Deutsche Bank are hammered out, holders of junior debt on four of the seven buildings must also agree, according to two people involved. Deutsche Bank and William Macklowe, Mr. Macklowe's son and president of Macklowe Properties, declined to comment.
Mr. Macklowe, who also lost several major properties during the real estate collapse of the early 1990s, typically doesn't give up without a fight. His concession to Deutsch Bank appears to be an effort to preserve his resources for an even bigger battle with the hedge fund, Fortress Investment Group.
When Mr. Macklowe bought the Equity Office portfolio he put in only $50 million of his own equity and borrowed the rest, some $1.2 billion, from Fortress. That loan also is due Feb. 9 and Mr. Macklowe has virtually no chance of refinancing it without a major equity infusion. Even worse, Mr. Macklowe pledged a personal guaranty of $1billion for that loan as well of his interests in 12 other properties, including the prized General Motors Building, overlooking the Plaza Hotel and Central Park.
Write to Jennifer S. Forsyth at
jennifer.forsyth@wsj.com
