Macklowes Sell General Motors Building For $2.9 Billion
May 23 2008 - A group led by Mortimer B. Zuckerman, chief executive of Boston Properties, a publicly traded real estate company, is buying the General Motors Building and three other Midtown towers from the financially troubled Macklowe family for $3.95 billion.
The deal, which had been brewing for months as the Macklowes sought to get out from under more than $7 billion in debt, is a victory for Mr. Zuckerman, owner of The Daily News, and his partners, Goldman Sachs and the nations of Qatar and Kuwait, who paid about $2.9 billion for the 50-story, white marble G.M. Building on Fifth Avenue at 59th Street. It is the highest price ever paid for an American office tower.
The sale of the building represents the loss of the crown jewel of the Macklowe real estate empire. The travail of the Macklowes and the fate of the G.M. Building have been closely watched by real estate and banking executives, both for the family drama and as an indication of the health of the real estate market.
The deal was struck about 2 a.m. on Saturday. Hours later, Boston Properties issued a press release announcing its purchase of the G.M. Building as well as 540 Madison Avenue, a 39-story building at 55th Street; 125 West 55th Street, a 23-story building between Avenue of the Americas and Seventh Avenue; and 2 Grand Central Tower, a 44-story building between Lexington and Third Avenues.
“We’re thrilled,” Mr. Zuckerman said in a telephone interview. “It is a real commitment to Manhattan and New York City and a real commitment to the future.”
As for the G.M. Building, he said it was a good match for his company’s collection of towers in New York, Washington, San Francisco and elsewhere. “Obviously,” he said, “it’s perhaps the most outstanding building in Manhattan and the country.”
Mr. Zuckerman declined to discuss the partners involved in making the deal. Boston Properties posted a $165 million deposit. The closing is scheduled to take a place over the next several months.
For the Macklowes, it is a bittersweet transaction. Harry Macklowe, a consummate real estate gambler, ruthless negotiator and talented developer, and his son, William S. Macklowe, had struggled for more than six months to find a solution that would allow them to pay off their debts while retaining control of the G.M. Building. But in the end, they had to relinquish the tower, where they had had so much success since they bought it in 2003 for $1.4 billion.
Barry M. Gosin, chief executive of Newmark Knight Frank, a real estate company, said: “It’s a cautionary tale. The market doesn’t always go up. You can’t assume that rents will go up 15 percent a year ad infinitum.”
Fifteen months ago, the Macklowes sought to double the size of their holdings in Midtown by buying seven towers from Equity Office Buildings for $7 billion. But as the subprime mortgage crisis buffeted Wall Street, they found themselves unable to obtain permanent financing and were crushed by $7 billion in short-term, high-interest loans from Deutsche Bank and Fortress Investment Group.
Still, it is remarkable that they could orchestrate a multibillion-dollar deal at a time when the capital markets are in turmoil and rival developers were circling their real estate holdings, hungry for cheap deals. The deal for the G.M. Building and the three others was not without some drama. Vornado Realty Trust and other competitors tried to make higher offers and upend the agreement with Boston Properties.
“We were determined to last five minutes longer than the other side,” Mr. Zuckerman said.
The Macklowes will now be able to pay off a nearly $1.4 billion loan from Fortress and consolidate their remaining real estate holdings.
Macklowes Sell G.M. Building For $2.9 Billion
by CHARLES V. BAGLI | New York Times