Just about a year ago, real-estate mogul Harry Macklowe borrowed $5.8 billion from Deutsche Bank to buy seven office buildings in New York City while putting up just $50 million of his own cash. That debt would have come due today, but last week Macklowe made a tentative agreement to turn control of the buildings back over to the bank, since the current credit crunch has made it impossible for him to refinance the debt. Though some holders of the debt are reluctant to sign on to the plan, according to The Wall Street Journal, the deal will probably go through by the end of the day. Meanwhile, Macklowe is pleading with another lender whose bill came due today — Fortress Investment Group, from whom he borrowed $1.4 billion in 2003 — to give him additional time. To pay them off, he'll have to sell off two other buildings he owns: a small midtown office building and the celebrated General Motors Building, bringing the total number of buildings he lost to nine.
If the deal with Deutsche Bank goes through, could this be the first multi-billion-dollar real-estate deal gone sour in which unsuspecting investors aren’t given the shaft — in the form of multi-billion-dollar write-downs or plummeting stock prices — and the responsible parties are the only ones to take it on the chin?
Macklowe knew full well what he was doing when he made these purchases; he was trying to take advantage of the bubble before it burst, and he was wrong. The penalty: He loses not only the buildings that he bought but also the crown jewel of his empire, the GM building. Who else gets burned? No one, really. Deutsche Bank, which just announced a fourth-quarter profit of $1.4 billion in the topsy-turvy market, says that they won't lose money on a deal with Macklowe.
Macklowe will go down in the annals of New York real estate as a mogul twice burned — he also took a hit when prices collapsed in the early nineties — but he’s got a new feather in his cap-of-failure that is remarkable for its singular aspect. Apparently, he has only recently returned from a trip to the Middle East, where he hoped to find new equity partners to fork over some cash and allow him to avoid the impending default. Yes, we refer to that Middle East — the one that’s literally spewing cash all over the globe, like gasoline from a hose, as the sovereign funds of oil-rich nations pick up the pieces of Western overreach from the credit debacle. And Macklowe came up empty. Forget about taking candy from a baby. Macklowe couldn’t even convince the baby to take the candy from him. —Duff McDonald