The Wall Street Journal-20080212-Macklowe Gets Default Notice As Talks Stall With Lenders
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Macklowe Gets Default Notice As Talks Stall With Lenders
Full Text (442 words)New York developer Harry Macklowe was served a notice of default and the possibility of a foreclosure loomed larger as negotiations with his lenders over $7 billion of debt on seven Manhattan buildings bogged down, according to two people familiar with the matter.
Vornado Realty Trust, a New York real-estate investment trust, which holds some of the subordinate debt, is the most strident opponent of the workout plan, according to two people familiar with the matter.
Because no agreement could be reached by all the lenders to give Mr. Macklowe an extension on his $3.1 billion in debt on four of the seven properties, a special servicer sent out a notice of default yesterday, according to the two people. That move set in motion a series of actions that could lead to a foreclosure.
Mr. Macklowe bought the seven Manhattan skyscrapers from Equity Office Properties Trust a year ago for $7 billion. But all of the financing was done in short-term debt that was due Saturday, and he was unable to pay off the loans.
Mr. Macklowe already had worked out an agreement with his primary lender, Deutsche Bank AG, which holds the senior debt on the properties. Moreover, most of the lenders on the subordinate debt- called mezzanine debt-also had signed on to the agreement by yesterday. The agreement called for Mr. Macklowe to retain title of the buildings, but essentially gave control to Deutsche Bank so they could be sold.
Vornado has balked on the agreement because it holds the junior-most slice of debt, according to people familiar with the matter. Vornado executives believe if the buildings are sold now, the price would be considerably less than Mr. Macklowe bought them for one year ago, wiping out Vornado's investment.
Deutsche Bank had divided the portfolio and sold subordinate debt on four of the seven properties. A Deutsche Bank spokesman and William Macklowe, Mr. Macklowe's son and president of Macklowe Properties, declined comment. Vornado couldn't be reached.
One person familiar with the matter said he believes Vornado is looking to be paid some compensation to agree to the plan. Previously, General Electric Capital Corp. was said to be opposed to the agreement but was on board yesterday, said the two people familiar with the matter.
Vornado disclosed in a federal filing in October that it had acquired a 42% interest in two mezzanine loans on the four EOP properties totaling $158.7 million for $66.4 million in cash.
Harry Macklowe also has been struggling to repay another loan on all seven of the properties totaling $1.2 billion from Fortress Investment Group LLC. That loan also was due Saturday. Fortress couldn't be reached.
