Macklowe May Lose $500 Million Site on Park Avenue

New York developer Harry Macklowe may lose a building site on Manhattan's Park Avenue about a third the size of a city block after he defaulted on a $513 million loan and Deutsche Bank AG asked a court to force a sale of the property.

Macklowe, who lost control of seven Midtown skyscrapers to Deutsche Bank earlier this year, acquired the site in March 2006 when he purchased the Drake Hotel at Park and 56th Street, and adjoining lots. He leveled the hotel to build a tower that would include retail space, condominium apartments and a new hotel.

Macklowe has repaid none of the money he borrowed for the project, according to a complaint by Deutsche Bank filed in New York State Supreme Court. The lawsuit could delay the project -- in a neighborhood where retailers pay among the highest rents in the world -- for years.

"Nothing is swift in foreclosureland, especially judicial foreclosure," said Joshua Stein, the author of "Stein on New York Commercial Mortgage Transactions" and a partner in the law firm Latham & Watkins LLP. "Depending on how much of a fight the borrower puts up, it could take a year or well over two years."

The filing could also force Macklowe to agree to hand the site to the lenders, who would sell it to recoup the debt, Stein said. Deutsche Bank, the Frankfurt-based company that's representing a syndicate of lenders, is asking the court to order the foreclosure and sale of the property.

Possible Record Price

Store rents along East 57th Street near the site averaged $900 a square foot, according to Cushman & Wakefield's 2007 "Main Streets Across the World" report. The property could fetch a record price for a Manhattan development site, said Dan Fasulo, managing director at Real Capital Analytics, a New York- based property research firm.

"Because of the value of the retail space and the potential to get well north of $2,000 per square foot for the condo sales, I would put the value of the site at between $900 and $1,000 per buildable square foot," he said in an e-mail.

Houston-based Hines Interests agreed last year to pay the Museum of Modern Art $775 a buildable square foot for the right to construct a residential high-rise next to the West 53rd Street museum, a record for a "sizable" site, he said.

Macklowe, 71, has been buffeted by the U.S. credit crisis for more than a year, after using almost exclusively short-term debt to acquire $7 billion of Midtown office towers in February 2007 from Equity Office Properties Trust. He had planned to sell off some of the buildings and obtain long-term loans on the others.

Pressure on Macklowe

When Macklowe was unable to refinance, he defaulted in February and was forced to sell his most valuable possession, the General Motors Building on Fifth Avenue, and three other towers to Boston Properties for $3.95 billion.

Within days of the June 9 closing of the GM sale, Macklowe's family owned firm announced that 40-year-old William Macklowe would replace his father as chairman and chief executive officer, and the company received expressions of interest for the Drake site from Related Cos., the developer of Manhattan's Time Warner Center, and MGM Mirage, the Las Vegas-based hotel and gaming company controlled by financier Kirk Kerkorian.

Deutsche Bank served Macklowe with a notice of default on the Drake property last November, according to the complaint, which was filed on Aug. 28.

Lenders may simultaneously sue to protect their rights while continuing to negotiate a settlement, said Gary Eisenberg, a partner in the financial restructuring practice of the law firm Herrick Feinstein LLP in New York.

Negotiating Tactic

"It doesn't necessarily mean the lender has totally run out of patience," he said. "More likely it's a sign they don't want to allow the process to go on indefinitely. One cannot assume there are no further discussions going on."

Jonathan Mechanic, a partner at the law firm Fried Frank Harris Shriver & Jacobson LLP, representing Macklowe, declined in an e-mail to comment. Jerome Hirsch of the law firm Skadden Arps Slate Meagher & Flom LLP, who drew up the complaint for Deutsche Bank, referred questions to the bank. Ted Meyer, a Deutsche Bank spokesman, also refused to comment.

Macklowe acquired the hotel in March 2006 from Host Marriott Corp. for $418 million, and proceeded to tear down the 495-room building. The site is now a debris-strewn lot shielded by a black-painted wooden fence.

The L-shaped site -- including four low-rise buildings along East 57th Street the Macklowes were in the process of buying --surrounds 450 Park Ave., a 37-story tower bought last October by Somerset Partners LLC for $1,566 a square foot, the most ever paid per square foot for a U.S. skyscraper.

Source: Bloomberg.com