Commercial Real Estate Blog

Over the weekend, the fate of the GM Building at 767 Fifth Avenue became known. Boston Properties and Goldman Sachs led an investment group that acquired the trophy asset along with other buildings from Macklowe Properties for $4B, $2.5B of which was assumption of debt. It’s rumored that middle eastern investors and sovereign investment funds are part of the investment group.

This deal highlights a tough 15 month period for the Macklowes which saw them make a spectacularly large acquisition of 7 buildings from Blackstone, only to default on the loans associated with the acquisition and finally the disposition of a dozen buildings totalling nearly 10 million square feet to escape financial ruin.

The elder Macklowe, 70, took on a $1.2B bridge loan from Fortress Investment Group which was recourse (meaning that the Lender, Fortress, could come after the personal assets of Macklowe). Part of the group’s personal assets (assets outside the investment vehicle created for the acquisition) was the GM Building which is likely now the most expensive office building ever sold.

It seems that the younger Macklowe is taking over the family empire from his father, who twice, has risked much at the wrong time and cost the family dearly, losing significantly both in the early 90’s and now. Of course, it must be said that the elder Macklowe has made many right moves as well, including the acquisition of the GM Building in 2003 for $1.4B, which has subsequently doubled in value.

After taking control of a $7B portfolio of properties from Equity Office last year, Harry Macklowe’s financing situation is rumored to have led to a deal to relinquish control of his properties to his lender, Deutsche Bank.

His financing package, when he acquired the buildings, only required him to put $50M worth of equity into the deal. In addition however, Macklowe was required to provide a personal guarantee of $1b for the deal.

As a result, CBRE has been retained by Macklowe to sell his trophy asset, the GM building in New York, possibly to help satisfy his obligations. The GM Building which Macklowe picked up in 2003 for $1.4B is estimated to be worth north of $3B.

The commercial paper market has taken a bite out of some investors but fortunately it seems that it is a manageable exit for Macklowe and the market.