Harry Macklowe’s early morning Saturday sale of the GM Building and three other midtown towers to a group led by Mort Zuckerman’s Boston Properties did more than just yank New York’s most virile phallus from the market. The GM Building deal slaughtered what had become a favorite scapegoat among brokers for the dip in Manhattan building sales: that investors, bewildered by the credit crisis and unsure how to price their buildings, were waiting for Mr. Macklowe to trade and show them the way.
“The Macklowe situation sort of became a bellwether,” one investment broker said.
Now that the bellwether has spoken, what exactly does it say?
Real estate experts are tepidly optimistic that the GM Building deal could reinvigorate the sluggish Manhattan investment sales market.
Emphasis on tepid. Manhattan towers are not about to start selling like so many Stella McCartney camisoles at an H&M megastore. But they may start selling at a less lethargic pace—which is something, is it not?
“I don’t think we’ll see an immediate reaction in building sales,” said an investment broker. “Over time, I think we’ll see an increase of activity.”
“This is all good news for the market, and I think people will be relieved,” said Michael Eric Anton, executive managing director of Eastern Consolidated. “I think it will be quiet for the summer, and then, hopefully, building sales will start picking up. Things don’t happen on a dime.”
Perhaps it was inevitable that the denouement would be anticlimactic.
Following an excruciating four months of bidding and negotiating and exhaustive speculation, the GM Building sold for about $2.9 billion, or $1,450 for each of the tower’s two million square feet. It’s the biggest price tag yet for a building—more than twice the $1.4 billion Mr. Macklowe paid for it back in 2003, and $1.1 billion more than the previous record, set by Kushner Companies when it bought 666 Fifth Avenue last January from Tishman Speyer for $1.8 billion. (Jared Kushner, a principal at Kushner, is The Observer’s publisher.)
The sale was helped along by a number of factors. First, Mr. Zuckerman and friends didn’t have to approach lenders for billions in fresh debt to purchase the building, something that Craig Evans, the senior managing director for institutional investment sales at Colliers ABR, said would have been “very difficult.”
Rather, the buyers will take on the $1.9 billion in debt already built into the GM Building, care of Mr. Macklowe. Were it not for that built-in debt, it’s unclear if any buyer would have been able to raise the amount of equity to purchase the property.
“Developers and buyers, if you compare them to drug addicts, they love debt,” said Mr. Anton. “It’s not that people are afraid of taking on debt; it’s that debt is not available.”
Could these Macklowe sales stimulate a more flexible debt market?
It’s possible, said Mr. Anton. “Maybe this gives bankers a bit more comfort in the fact that there are still buyers out there for Class A buildings.”
That said, while the GM Building’s built-in debt made it easier to sell, Mr. Macklowe’s status as a distressed borrower, with creditors after him like sharks on chum, helps explain why he sold relatively cheap, the sales price falling well below original estimates that it would exceed $3.5 billion.
“It’s a bargain,” one real estate broker said.
Boston Properties, which is leading a team of investors that includes Goldman Sachs, Morgan Stanley and reportedly Qatari and Kuwaiti investors, paid another $1 billion for three other properties once belonging to Mr. Macklowe: 540 Madison Avenue, 125 West 55th Street and Two Grand Central Tower.
The genesis of the deal developed, of course, last February, when Mr. Macklowe, in a move typical of his aggressive investment style, took out major loans from Fortress Investment Group and Deutsche Bank to buy seven Manhattan towers for $7 billion. He put down $50 million of his own money and used the GM Building as collateral.
The gamble didn’t pay off. His bills came due just as the credit crisis hit. Mr. Macklowe had to sell the building that he’s said to have coveted since the ’60s, when he watched it rise, story by story.
The four-month-long struggle to sell the building also strained Mr. Macklowe’s relationship with son and heir apparent, Billy Macklowe, according to an article in Tuesday’s Wall Street Journal.
The younger Macklowe plans to take control of Macklowe Properties as chairman in the next few weeks and lead it on a more conservative path. He’s been the firm’s president since 2002.
Otherwise, however, it’s hard to construe the sale of the GM Building and accompanying towers as anything but a positive development for the Manhattan market.
“The Boston Properties deal with Macklowe, on the heels of Related’s recent agreement on the M.T.A. rail yards sites, bodes well for New York,” said Jon Caplan, a member of Cushman & Wakefield’s New York investment sales team. “These are major investments in New York City by major, sophisticated New York owners. They feel the underlying pulse of the city and understand the lack of supply in the office and residential markets.”
Or, as Mr. Anton put it, “The GM Building, the biggest question mark, is now put to bed.”