Macklowe could cash in on future GM Building role

New York /
Feb.February 28, 2008 12:14 PM

Cash-strapped developer Harry Macklowe never wanted to sell his prized General Motors Building. But now that his overdue debts have been forced him to sell, real estate executives say that Macklowe is seeking an agreement that will at least leave him with a substantial income stream.

Macklowe is seeking a deal that would allow him to remain in a management role, and possibly retain a minority stake in the building, sources familiar with the talks said.

“I think he’s going to make the best economic deal he can,” said one real estate executive who asked not to be identified. “Retaining a stake in the property is the only way to have something positive come out of it.”

Macklowe has entertained offers from at least three potential buyers for a record $3 billion-plus deal to sell the GM Building, sources said. Macklowe would use the proceeds to pay down the $7 billion in debt he incurred from his highly-leveraged acquisition of seven Manhattan office buildings last year.

Macklowe bought the 767 Fifth Avenue tower in 2003 for $1.4 billion, then a record sale for a U.S. office building. When Macklowe borrowed $7 billion in 2007 to finance the seven Equity Office Partners office buildings, he used the GM Building as collateral.

Macklowe recently reached a deal with his biggest creditors, Fortress Investment Group and Deutsche Bank, to extend his loan. That gave him more time to complete a sale of the GM Building, which his creditors could have seized.

Legal experts say that Macklowe could generate a substantial amount of money by remaining in a management role. He could earn up to 4 percent commissions on gross rents and additional commissions on leases.

“The management aspect of these types of buildings is very lucrative,” said Dennis Russo, an attorney at Herrick, Feinstein.

World Trade Center developer Larry Silverstein and billionaire Joseph Cayre are seen as the two leading candidates to buy the trophy building. The New York Post reported that Cayre, a co-owner of the Sears Tower, is in the lead, because he is backed by Middle Eastern investors who would buy out Macklowe’s creditors.

Macklowe owns 12 million square feet of office space and about 900 apartments in New York. At the GM building, which includes 2 million square feet of office space, only floors 14 to 16 are available for lease for commercial tenants. Nearly 6,000 square feet of retail space is available on the Madison Avenue side of the building.

The tower’s limited amount of office space could lead to asking rents that are double the going rate for Class A Midtown office space, which averaged $94.66 per square foot in January, according to a report from Colliers ABR.

Wharton Property Advisors broker Ruth Colp-Haber said Macklowe will “try to get $200 a square foot for prime space in that building. First of all, there’s very little prime space in that building.”

James Meiskin, president of tenant representation firm Plymouth Partners Ltd., said that whoever buys the building would benefit from partnering with Macklowe, despite his financial problems.

“He is a very smart, very savvy, forward thinking developer, owner and entrepreneur,” said Meiskin. “It would be very wise for the new owners and for the tenants for Harry Macklowe to remain involved.”  

 

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