Macklowes locked in high-stakes tug of war

As father and son wrestle for control of their digital domain, a $300 million lawsuit threatens their fragile coexistence

Jan.January 01, 2017 01:00 PM

(Composite by Wally Konefal)

It takes about six minutes to walk from Harry Macklowe’s office at 510 Madison Avenue TRData LogoTINY to the soaring condominium tower at 432 Park Avenue that he’s called the culmination of his high-profile career. It would have taken him just another minute or so to stroll over to the East 56th Street office of his son, Billy.

But on Monday, November 14, the time for social calls had long since passed. Instead, on that unseasonably mild day, Harry slapped his son with a lawsuit alleging he had threatened to stop providing human resources, payroll and IT support to his father’s company under the gentleman’s agreement the two had forged in 2010. In the suit, filed late in the day, Harry not only accused Billy of essentially holding those services hostage, but also charged that he had “usurped control” over two of his father’s websites.

Earlier in the day, it seemed like the father-son collision would be averted. A call from Harry’s lawyer, Keith Corbett, to Billy’s general counsel, Jason Grebin, informing him that the elder Macklowe was preparing to sue his son triggered hours of fevered negotiation. By midnight, it looked like the attorneys had worked out a deal, court documents show. “Are we good?” Grebin asked Corbett in an email dispatched at 11:51 p.m. About 25 minutes later, according to the documents, Grebin shot off another message to Corbett: “How about a confirm so I can go to bed?”

It never came.

Unbeknownst to Billy’s camp, Harry instructed his lawyer to go forward with the lawsuit. Grebin and Billy would only learn the deal had fallen through at 6 p.m. on November 15, when Corbett sent Grebin an email with an ominous attachment, a copy of the petition Harry filed, suing his son over a key Macklowe website and seeking $300 million in damages.

The sum is large and largely misleading. Unlike other lawsuits filed by the famously litigious developer over the years, the latest battle involving isn’t just about money, or bricks and mortar, much less a digital domain. This one is uniquely personal. According to several people who know the Macklowes, the tussle over ownership of the Macklowe domain name comes down to deciding who will control their shared surname.

“These are smart, busy people. To spend all this time litigating about a website is just a silly distraction and a waste of their resources,” said Joshua Stein, a commercial real estate lawyer and sole proprietor of an eponymous law firm, who is not involved in the litigation. In reality, the father and son are “fighting over the family name, the family identity,” Stein said.

At least publicly, the roots of that struggle stretch back to 2007, when Harry defaulted on the $7 billion loan he used to snap up seven office buildings from the Blackstone Group at the height of the real estate bubble.

To pay off his lenders, in May 2008 Harry had to sell off four properties — including the Macklowes’ most prized asset, the General Motors Building, which Harry purchased from a joint venture between Donald Trump and insurer Conseco for $1.4 billion in 2003. Just three weeks after that stinging defeat, Billy ousted his father as the head of Macklowe Properties.

“There’s a different way of business going forward,” he told the Wall Street Journal at the time.

By many accounts, Billy — seen by some as a calm counterweight to his father’s brilliant but risky and volatile ways — spent the next two years putting out fires, staving off creditors and preserving what was left of the family’s real estate empire. Sources close to the family credit the younger Macklowe’s more conservative way of doing business with his success. He is “more restrained” than his father, the late attorney Sandy Lindenbaum told The Real Deal in 2010. “That’s why he was able to come in and deal more easily with the workout.”

In 2010, Billy went one step further, splitting from the family business to form his own real estate investment firm, William Macklowe Company, and taking several of his father’s executives with him. Over the next few years, the younger Macklowe notched up a series of successes, including the refinancing of two properties: 400 Madison Avenue, with a $66.5 million loan from Metropolitan Life and Malkin Strategic Capital, and 610 Broadway, with a $43 million loan from Eurohypo.

In 2014, Billy acquired 156 William Street, paying $62.5 million. Since then he’s reaped $55 million on the sale of his majority stake and $82.2 million on the sale of two commercial condos there. Meanwhile, at 21 East 12th Street — the former Bowlmor Lanes site he bought for $22.5 million in 2012 — he is putting up a 52-unit condominium. As of last month, 40 percent of its units were in contract, at prices averaging $3,300 to $3,400 per square foot.

“He’s sold well in excess of our projections in terms of pace and pricing,” said Matthew Petrula of M&T Bank, Billy’s lender on the project as well as on 156 William. “He’s very bright, and in every respect, he underpromises and overdelivers,” Petrula added. “That goes a long way in our business.”

On his own again, Harry, too, has achieved success, most visibly with the against-the-odds rise of the tallest residential tower in the Western Hemisphere, 432 Park Avenue. Back in 2006, he paid $440 million for what was then the site of the Drake Hotel. Two years later, after he defaulted on a $482 million loan, he took on a deep-pocketed partner — CIM Group, which had bought up the debt at a discount — as the project’s co-developer.

Most recent estimates peg the building as 75 percent sold. In September, Saudi retail magnate Fawaz Al Hokair reportedly closed on the 1,396-foot property’s penthouse for $87.7 million, or a whopping $10,623 per square foot.

“Harry was the one who put it together,” said Jonathan Mechanic, chairman of the real estate department at Fried Frank, a firm that’s long worked with the developer. Pointing to the senior Macklowe’s vision for housing an Apple store in a towering glass cube at the base of the GM Building, Mechanic described Macklowe’s singular talent as value creation. “He’s got the ability to sketch things on a napkin and show you what a building will look like,” he said. “It’s like two plus two equals 10.”

On a smaller scale, other projects also bear that out. They include his 24-unit rental-to-condo conversion at 150 East 72nd Street and a 60-unit conversion at 737 Park Avenue.

But now, in the face of an ongoing slowdown in the high-end residential market, the prospects for success for both father and son have dimmed, highlighting the two very different paths they have taken since the recession.

Asked by TRD in a December video interview unrelated to this story what he’d learned from those earlier hard times, Billy first pointed to the founding of his own business. “I don’t know if you want to call that a lesson or not,” he said, adding, “We’ve been very measured in how we take on capital and deploy risk. We’re not aggressive at all in how we seek to finance our investment endeavors.”

In many respects, including personally, his father has steered in the opposite direction. Most notably, Harry announced in May that he was leaving his wife of 59 years, Linda, for a younger woman, Patricia Landeau. With the Macklowe real estate empire and a billion-dollar art collection hanging in the balance, the couple has geared up for an ugly divorce.

And with Billy steadfastly standing by his mother’s side, some see Harry’s lawsuit against his son as thinly veiled retribution for that decision. “You look at the timing and you connect the dots. It’s venomous, and very one-sided on Harry’s part,” a source told the Commercial Observer in November.

In court documents, the senior Macklowe’s lawyers paint the developer as having been an “affectionate father” with “great admiration and care for his son” when he allowed Billy — once his presumed heir — to manage certain Macklowe-owned properties through his son’s newly formed company in 2010.

“To maximize his son’s chances of success, Harry Macklowe also allowed William Macklowe to take over” certain administrative services as well as the domain, according to court records. Only when Billy threatened to cut off those services, the suit stated, did that supportive role come to a halt.

In contrast, Billy’s lawyers told the court that the suit came only when Harry “became paranoid that Billy was reading his emails” and in early November demanded they “decouple” the services.

In some ways that “decoupling” seems to mirror the elder Macklowe’s marital split. At this point, though, Harry’s and Billy’s camps both insist — publicly, anyhow — that father and son could yet achieve a happier parting.

“Billy Macklowe remains hopeful that he and his father will resolve this matter amicably,” the younger developer’s spokesperson said in mid-December.

A spokesperson for his father went further, saying that “settlement discussions have progressed to an advanced stage” and adding that Harry is “pleased that the major points of the settlement have been agreed to by both parties.”

Meanwhile, those who do business with one or both Macklowes say all this has a familiar ring to it. Over the years, Harry has taken to court a long list of politicians, tenants and business foes. He also famously sued his former son-in-law, developer Kent Swig, not to mention Martha Stewart, his neighbor in East Hampton.

“Harry is a litigious fellow. He gets into fights,” one industry source told TRD on the condition of anonymity. “It’s just Harry. He’s famous for that.”

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