The Wall Street Journal-20080116-Plots -amp- Ploys
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Plots & Ploys
[What's Brewing in the Real Estate Market]
Real-estate mogul Harry Macklowe's daring dance with debt has taken a few more twists and turns.
First, he has hired CB Richard Ellis, a Los Angeles-based brokerage, to market the General Motors building, one of Manhattan's most prestigious addresses, according to two people familiar with the situation. Then Mr. Macklowe seems to have evaded catastrophe on the office building he is planning to develop at 510 Madison Ave. As Deutsche Bank, his longtime lender, was debating whether to foreclose on a defaulted $120 million predevelopment loan, he snagged a commitment on a loan from Washington-based Union Labor Life Insurance Co. and likely will be able to pay off the investment bank. Herb Kolben, a Union Labor senior vice president, predicted a closing by the end of January.
Also this week, there was a turn in a lawsuit involving the GM building. While Mr. Macklowe isn't party to the suit, he's bound to be paying attention.
That building, at 767 Fifth Ave., in the heart of midtown Manhattan, is part of the collateral on a $1.2 billion bridge loan that Fortress Investment Group LLC made to Mr. Macklowe for his $7 billion blockbuster purchase of seven New York properties from Equity Office Properties Trust last February. That loan, plus interest, now totaling about $1.35 billion, is due Feb. 9, and Mr. Macklowe is struggling to repay it.
Mr. Macklowe also borrowed $5.8 billion from Deutsche Bank AG to finance the Equity Office deal, and that, too, must be repaid by Feb. 9. The transaction, done at the top of the market, has made Mr. Macklowe one of the most closely watched figures in commercial real estate who is at risk of becoming undone by the credit crunch and weakening economy.
Mr. Macklowe bought the GM building in 2003 for $1.4 billion, then a record. His renovations were hailed as visionary, after his reputation was tarnished partly by his struggles in the early 1990s during the commercial-real-estate crash. His improvements to the building and a rising market, increased its value.
But Mr. Macklowe has increased the debt on the building, which now stands at $1.9 billion. He has predicted that the building could sell for $3.5 billion or more, thus netting him enough to pay off the Fortress loan. However, prices are dropping, and some real-estate experts question whether the sale price will be that high. If not, Mr. Macklowe could be forced to put more of his properties on the block.
Robert McGrath, a spokesman for CB Richard Ellis, and Billy Macklowe, Mr. Macklowe's son and president of Macklowe Properties, declined to comment.
Speaking of the GM building, rival real estate developer Sheldon Solow won in federal court this week when U.S. District Judge Barbara S. Jones ruled that his suit against Conseco Inc. can go forward, alleging fraud in connection with the sale of the building to Mr. Macklowe. Mr. Solow says he, too, bid $1.4 billion for the building, but, unlike Mr. Macklowe, he met the deadline for final offers. Mr. Solow alleged the process was a sham designed to use other bidders as "stalking horses" to establish Mr. Macklowe's price.
Legal experts say the possibility that Mr. Solow's lawyers could find a way to change the judge's mind-could make potential buyers ask for a discount.
