Macklowe May Lose Manhattan Trophy Portfolio in $5.8B Debt Squeeze

Macklowe Properties’ reported decision to give up control of a $7 billion Manhattan office portfolio to Deutsche Bank AG may be the prime example of how turmoil in the capital markets can cause havoc for refinancing. Only a year after buying seven trophy towers in the blockbuster deal, the firm is apparently on the verge of losing the portfolio because it cannot refinance $5.8 billion in debt provided by Deutsche Bank. Reports of Macklowe’s troubles in refinancing the properties began surfacing last year, so the latest twist comes as little surprise. According to a report by Jennifer Fortsyth in today’s Wall Street Journal, Harry Macklowe, the firm’s founder, has hammered out a tentative deal. Although Macklowe has a reputation as a bold risk-taker, some experts were reluctant to second-guess the resilient veteran’s judgment in this case. “I think Mr. Macklowe just unfortunately got caught up in a storm of changing financial conditions,” Dan Fasulo, director of market analysis for Real Capital Markets Inc., told CPN this morning. “The financing obviously is not working in the current economic environment.” The good news for Deutsche Bank is that if it does put the buildings on the block, it will probably find plenty of takers. “I think there’s no question that these are arguably some of the most desired assets in one of the most desirable submarkets in the world,” Fasulo noted. One big question is whether the portfolio would be kept intact or broken up and sold in pieces. The scale of the deal required an unusually complex financing structured that may be difficult to untangle. “You have to go to many different parties and satisfy their demands before you release (individual buildings),” Fasulo explained. He speculated that that if not for the intricate deal structure, Macklowe might have already sold several buildings individually. Today’s development follows reports that circulated last month that Macklowe’s current financing woes may also force the firm to sell or recapitalize the crown jewel of its portfolio, the General Motors Building at 767 Fifth Avenue in Midtown Manhattan. Local industry sources say that Macklowe has brought CB Richard Ellis Inc. on board to market the property, which was not a part of the portfolio purchased last year. Macklowe paid a then-record $1.4 billion for the GM building five years ago, and local sources have told CPN that the property might fetch up to $3.8 billion.