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Details of Macklowe’s EOP NYC Portfolio Acquisition Shed Light on Underwriting Standards

September 25, 2007

There have been a lot of articles over the course of the past month and a half outlining the tightening standards lenders are enforcing for both commercial and residential property transactions. Many of us in the business were aware of acquisitions taking place involving loan-to-value and debt-service coverage ratios which deviated from what credit markets were typically accustomed to seeing. An article in last week’s Wall Street Journal however shed light on the extent to which underwriting standards had loosened.

Macklowe Properties, a large real estate holder was able to secure funding for a $7.6 billion dollar acquisition of NYC property with only $50M of equity put into the deal by Macklowe. While the loan is a recourse loan, it is an excellent example of how loose lending standards had gotten. So long as commercial property prices continued to increase, lenders had a safe exit and borrowers continued to make huge returns on investment quickly flipping properties. As the market has now turned, it seems Macklowe Properties might be left without a seat if the music does ultimately stop and they are unable to find a way to repay their loans.

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