Lender Helps Developer
Get a Grip on His Debt
by Jennifer S. Forsyth
From The Wall Street Journal Online
February 26, 2008
Real-estate titan Harry Macklowe, heavily in debt on several high-profile properties, has made headway with his lenders in the past few days.
On Thursday, Mr. Macklowe closed on a new $330 million construction loan for an office building he is developing in midtown Manhattan. The new loan pays off a $120 million predevelopment loan on that project, called 510 Madison, which has been in default since December.
His primary lender, Deutsche Bank, stepped in to help Mr. Macklowe cinch the new loan, a sign that the investment bank is pleased with the developer's effort in addressing a much bigger debt he has hanging over his head, according to two people familiar with the matter.
Mr. Macklowe has become one of the symbols of the perils of high leverage after he got caught by the credit crunch and was unable to pay off $7 billion in loans due Feb. 9 on seven skyscrapers he purchased a year ago from Equity Office Properties Trust. A spokesman for Deutsche Bank declined to comment.
The building, at the corner of Madison Avenue and 53th Street, is planned for 30 stories and about 350,000 square feet of office space. It will offer a swimming pool and health club and is expected to cater to private-equity firms and hedge funds. It is a speculative office building that comes at a time when Wall Street banks and financial-services firms have been cutting jobs due to losses related to the subprime-mortgage debacle.
Washington, D.C.-based Union Labor Life Insurance Co. provided primary financing of about $267 million, and Deutsche Bank provided a junior piece of debt for an additional $63 million, according to two people familiar with the matter. Herb Kolben, a Union Labor senior vice president, declined to comment on the terms but confirmed Friday that "the loan was closed yesterday and we are funding construction of the building."
Mr. Kolben had predicted that the loan would close in early January, but it was apparently held up while Deutsche Bank continued to negotiate with Mr. Macklowe over $5.8 billion in short-term debt he owes the investment bank on the seven Equity Office buildings.
Mr. Macklowe also owes an additional $1.4 billion to hedge fund Fortress Investment Group on those properties. He has put his General Motors building -- a 50-story tower at 767 Fifth Avenue that is one of the best-located office buildings in the world -- up for sale to help pay off that loan. He has also agreed to give up control of the seven Equity Office towers so they can be sold.
"Deutsche Bank would not have closed 510, if they didn't feel he was doing all the things that he needs to get done on the rest of the fronts," said one person familiar with Mr. Macklowe's situation. William Macklowe, Mr. Macklowe's son and president of Macklowe Properties, declined to comment.
He remains in default on a $510 million loan related to the construction of an office building at the site of the former Drake Hotel on Park Avenue.
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