Analyzing Harry Macklowe’s Development Legacy

I have long had a fascination with the grit it takes to be a Manhattan developer. After all, I taught market analysis to a class of approximately 150 graduate students in Columbia’s Master of Science in Real Estate Development (MSRED) program for 8 years. My students have ended up all over the U.S. and hopefully they learned not to accept “no” as an answer when they’re out in the world. That’s the dividing line since developers tend to ignore the word “no” and keep pushing, when non-developers like me would cower in fear and self-doubt. It helps to look at the huge Manhattan skyline and think about how many developers became quite accomplished by saying “no.”

Of course, I’d have an ulcer in short order if I ever endeavored to become a developer. I’m just not built that way. Here’s how I describe the development cycle after observing it firsthand for the past forty years:

Developers develop until they can’t develop anymore. It usually ends badly, but 5 years later they start over like nothing bad ever happened.

My interest in their mindset should not be confused with an endorsement of their business practices.

This generalization is admittedly at odds with the quiet, under-the-radar developer Nathan Berman of MetroLoft, who is converting the former Pfizer Headquarters in Manhattan into an office-to-residential rental conversion. His conversion just suffered a partial collapse. This is my quote from the recent New York Times profile on him:

“Most of the developers I know all have some sort of personality disorder, and that’s why they got as far as they did,” said Jonathan Miller, a prominent New York real estate appraiser. “But Berman doesn’t really have a reputation.”

Apologize rather than ask permission

In the legend of Harry Macklowe (disclosure: I represented his former wife in his divorce but have never worked with him), an icon of the Manhattan development world, engineered what remains one of the boldest timing trades in New York development, informally known as the “midnight demolition.” This was a secret, after‑hours demolition of four single‑room‑occupancy buildings on West 44th Street in 1985 in order to beat a pending moratorium on razing SRO hotels. The site was under contract, not yet closed; permits had not been issued; gas, water, and electric lines were still live when the wrecking crew did their thing in the middle of the night, forcing the city to shut down the block and turn Times Square into a construction crime scene.

Macklowe’s bet was clear: if he could eliminate the buildings before the moratorium took effect, he would lock in the value on a future luxury hotel tower and let the lawyers and politicians argue about process later. However, the city brought criminal charges, and his company and partners ultimately pled guilty. He agreed to pay roughly $2 million to support SRO rehabilitation, a relatively nominal amount relative to the project’s total cost of $85,000,000 in 1985. The hotel opened in 1990 but ran into trouble by 1994, when Macklowe defaulted on the mortgage and Chemical Bank foreclosed on the property after all that effort.

In hindsight, the episode reads less like a smart arbitrage and more like a case study on the outer limits of the “apologize rather than ask permission” model: a moment when one developer tried to convert legal and political uncertainty into upside by demolishing first and negotiating later. In modern times, this is done nearly every day by tech billionaires, including Meta’s Mark Zuckerberg. Push the boundaries of privacy, and when occasionally caught, simply apologize.

When I first got the idea for this piece, I was thinking about the developer persona in general and was not focused on Macklowe. But his name kept coming up in my memories of extreme development activities in Manhattan over my past 40 years of valuation and market analysis, so I stuck with him as the protagonist.

Playing chess — literally

In October 1990, the newly restored Hudson Theatre, adjacent to the Macklowe Hotel (now the Millennium Hotel), just east of Times Square, which evolved from the ‘midnight demolition’ five years later, hosted the opening phase of the Kasparov–Karpov World Championship chess match. I bought tickets and took the afternoon off to attend the match, which was only a block away from my former office. The game was played on the newly renovated Hudson Theatre’s main stage before a live, sold‑out audience.

I entered the beautiful, full and now stone-silent theatre, where everyone was handed wireless headphones to hear two analysts, one giving the play-by-play and one providing color commentary like a Monday Night Football show. The latter was constantly citing famous chess moves from other championship matches, such as the 1972 Spassky vs Fischer match in Reykjavík, Iceland. It was surreal and a lot of fun — how can you not love NYC for all the eclectic opportunities like this? At one point, the commentators made the audience chuckle out loud, myself included. I don’t remember the joke, but both Kasparov and Karpov turned from the board and stared harshly at the audience. We immediately got quiet!

Telling jokes

Developer Harry Macklowe also has a well-known fondness for classic Catskills‑style jokes, which seems to contrast with his developer bravado. He has performed them on camera, notably in the “Old Jews Telling Jokes” series, where he clearly loved the role of storyteller.

In fact, during courtroom breaks from my testimony during his divorce trial about a decade ago, I chuckled to myself at how he loved telling jokes to the (female) press in the gallery.

Watch out when a developer starts describing their project as “art”

In interviews and talks about his 432 Park Avenue development, Macklowe described the building as a pure geometric composition rather than a typical glass curtain‑wall skyscraper. As I recall, the high-end market was wobbling a little back then, when there was a big New York Times story, which has an amazing description of the developer:

The risk-addicted builder has been up and down so often, and so violently, over the years that his career of half a century in New York City real estate has the dizzying topography of the Himalayas.

In my seemingly part-time role as a real estate pundit, I often warn that during weak housing markets, be concerned when a developer starts talking about their latest project as a work of art.

‘Fee factories’ can matter more than the condo sell-out

Despite all of Macklowe’s development problems, he usually comes out on top. But how does he navigate the chaos? A friend of mine, who was a prolific co-op converter when I first came to Manhattan in the 1980s, told me that on Wall Street, it is all about the fees.

Developers like him typically design condo projects as “fee factories” wrapped in a capital stack, with unit-sales risk pushed as far down the waterfall as possible. In that context, a developer like Harry Macklowe can make a lot of money even if the sell‑out is bumpy, because his primary economic engine could be fees, not just margin on the last units sold. We often hear these projects described as driven by profits from the final penthouse sales, but the fees are often the focus, especially since the recent development boom, when Wall Street stepped in after traditional commercial lenders stood aside, still licking their wounds from bad decisions made during the financial crisis with fines and regulatory scrutiny. Wall Street has been clearly focused on the fees in recent years.

The promote

In a typical equity waterfall, investors get their capital back plus a preferred return first; only after that do “excess” profits get split in a way that favors the sponsor. In NYC, the term “sponsor” is usually interchangeable with “developer.” The slice of those profits that the sponsor takes, over and above what their own equity contribution would justify on a pro‑rata basis, is the promote.

Put differently, a promote is a performance‑based profit that rewards the sponsor for meeting or exceeding underwriting targets, and it is distinctly apart from the fixed fees I described earlier. A good place to follow this world is Hiten Samtani’s “The Promote.”

Final thoughts

Harry Macklowe’s career shows how top Manhattan developers treat “no” as a starting point. In 1985, he secretly demolished four SRO buildings overnight, without permits and with live utilities, to beat a preservation moratorium and clear the way for a luxury hotel. It cost him criminal charges and a $2 million settlement, which was nominal compared to the overall development cost. Developers like him often still win financially through fees when unit sales struggle. Today, such an audacious action would be a felony. Despite all of the drama, the new hotel still went into foreclosure four years later.

To aspiring developers, don’t accept “no” for an answer and be sure to carry a large bottle of Pepto-Bismol.

The actual final thought — Another useful tool for forecasting.