Harry Macklowe’s Back and Ready to Remake a Piece of 42nd Street

One evening last July, developer Harry Macklowe arrived at one of the city’s most powerful law firms, determined to get his hands on a valuable piece of real estate. Darkness had descended, and the offices of Robinson, Silverman, Pearce, Aronsohn & Berman L.L.P. were almost empty. But it’s not unusual these days for Mr. Macklowe to do business into the early morning hours.

Mr. Macklowe strode into a conference room, where he met a group of secretive investors who owned the mortgage on a rather decrepit-looking building on the southwest corner of 42nd Street and Madison Avenue. The mortgage owners eyed the developer warily-and who wouldn’t have? Mr. Macklowe, who still possesses the roguish good looks of an aging Hollywood buccaneer, was one of the most notorious figures of the Manhattan real estate boom in the 1980’s. And when the real estate market collapsed, Mr. Macklowe joined the parade of arrogant high-fliers who lost a number of their signature properties.

But the 60-year-old Mr. Macklowe has proven to be extraordinarily resilient. With Manhattan properties once again selling at a premium and Wall Street throwing money at developers who couldn’t get a bank loan several years ago, Mr. Macklowe has resurfaced with a vengeance. “We haven’t really been away,” he insisted in a recent interview. “But our activity has increased considerably over the last 24 months.”

Mr. Macklowe’s comeback has a lot to do with CS First Boston, the investment bank that has backed most of his recent purchases. Indeed, with First Boston’s financial weight behind him, Mr. Macklowe was able to snap up the mortgage for 310 Madison Avenue for $65 million after negotiating until 5 A.M. at the office of Robinson Silverman. In recent weeks, Mr. Macklowe wrestled control of the building from its former owners, who had defaulted on the mortgage and filed for bankruptcy.

The developer told The Observer that he now plans to demolish the building and build a 1 million-square-foot skyscraper in its place. The site is a splendid one, and the developer has hired the prestigious architecture firm Skidmore, Owings & Merrill to design his office tower. “You can’t find a better location right now in Manhattan to build a new building,” said James Kuhn, president of Newmark & Company Real Estate Inc.

And now Mr. Macklowe has even bigger things in mind. The Observer has learned that he is talking with Lehman Brothers about taking his company public sometime this summer. If Mr. Macklowe can convince the public to entrust its money to the Macklowe Organization, it would a stunning vindication for the developer best known for hiring a contractor to tear down a single-room-occupancy hotel in the middle of the night in 1985, without getting the proper permits or even shutting off the gas.

Mr. Macklowe is clearly the same impulsive fellow whose aggressiveness has had disastrous consequences in the past. On Dec. 7, nearly a ton of bricks rained down on Madison Avenue near 55th Street from one of Mr. Macklowe’s buildings on a Sunday afternoon. The developer has said he was unaware of any problems with 540 Madison Avenue, but a city inspection report filed with the Department of Buildings in 1991 clearly indicated troubles with the property’s brick facade. Moreover, some business owners on the street said Mr. Macklowe has yet to make good on his very public promise to take care of his neighbor’s expenses from the mishaps.

‘A Living Nightmare’

Meanwhile, rent-regulated tenants in two residential buildings that Mr. Macklowe purchased last year have filed harassment complaints against one of his companies with the State Division of Housing and Community Renewal. Their attorney, William Gribben, accused Mr. Macklowe of trying to clear out the buildings on East 53rd Street near Second Avenue by allowing them to deteriorate into a flophouse for homeless people and crack users. “It’s been an absolute living nightmare,” tenant Nancy Cassone said.

In a lengthy interview at his West 57th Street office, Mr. Macklowe expressed shock that anyone would accuse him of such tactics. He was much happier talking about his comeback. While he declined to go into detail about his talks with the investment bank Lehman Brothers Inc., the developer insisted that his company is more formidable than ever. “We now own more property than we did previously,” he said proudly. “We have a portfolio of between a $1 billion and $1.25 billion. We’re much lower leveraged. We have a much stronger company across the board.”

Much of Mr. Macklowe’s resiliency can be attributed to his boundless energy and will. “Harry is as tireless as any client I have,” said William Adamski, a First Boston director and one of the leaders of its real estate investment banking group. “He is as dedicated as any developer we know.”

Mr. Adamski paints a picture of Mr. Macklowe as a man obsessed with details. In fact, the financier said Mr. Macklowe bent his ear about what kinds of windows, dishwashers and countertops he wanted to install in a Chelsea loft he converted to a condominium in 1996. It was Mr. Macklowe’s first deal with First Boston, and Mr. Adamski was impressed, although truth be told, Mr. Macklowe told him much more than he needed to know. “That’s great, Harry,” Mr. Adamski told the developer. “That’s terrific. I’m really happy for you. I hope it sells.”

Not everybody shares Mr. Adamski’s enthusiasm. In fact, some in the city’s real estate community say that Mr. Macklowe is forced to fight for buildings in bankruptcy court because the industry still views him with suspicion. “Why would a bank go to him if it had a building in foreclosure and they were looking for a buyer?” said a real estate broker who has done business with Mr. Macklowe. “Harry’s a bottom-fisher. Most people who do business with him wind up on the short end of the stick.”

Indeed, Mr. Macklowe’s career has been marred by a series of embarrassing incidents, beginning in 1971 when he agreed not to sell real estate securities for three months after the State Attorney General accused him of promoting investments in buildings with materials containing statements that were “false, misleading and unwarranted.” And, of course, there was the infamous SRO demolition.

In the meantime, Mr. Macklowe has developed some striking buildings, including the angular, black glass Metropolitan Tower on 57th Street and the Hotel Macklowe on West 44th Street, which he built after demolishing the SRO but lost during the real estate recession. Through it all, though, his successes have been tainted by controversies. “He’s always going to try to cut corners,” said another real estate executive, who has had unsatisfactory dealings with the developer.

The situation at 540 Madison raises exactly that issue. Mr. Macklowe said he was under considerable pressure to close the deal in a hurry when he bought the building in 1996 from the estate of the late Francis J. Kleban. According to the developer, Tishman Speyer Properties, the Resick family and several other real estate companies were competing for the building.

According to Warren Cole, the Macklowe Organization’s executive vice president, the sellers provided very little information about the property and required the deal to be closed in 30 days. Mr. Macklowe prevailed by paying $35 million for the building. Mr. Cole said the developer was able to outbid his rivals because he believed he could wring a considerable amount of cash out of the building by increasing the retail space at the base. “We evaluated the bid very carefully,” he told The Observer . “We made very many arithmetic computations of the project.”

But for all their sophisticated studies of 540 Madison’s potential for increased cash flow, Mr. Macklowe didn’t check a routine inspection report filed with the city’s Department of Buildings in 1991. According to the report, an inspector observed “cracks in the brickwork at the southeast and northwest corners at various floors” in 1982. Five years later, an inspector noticed “an unsafe vertical crack” and protruding bricks at the northwest corners between the 19th and 20th floors.

According to the report, some of these problems were corrected later that year. But the report recommended annual inspections by a licensed engineer. “We believe that was never done,” Ted Birkhahn, a Department of Buildings spokesman, said. The existence of the report was disclosed by The New York Times in December.

He’s ‘Astonished’

Mr. Macklowe maintained he hadn’t known of the report’s existence and told The Observer he wasn’t even aware the department kept such documents on file for public perusal. “I’m astonished,” he said.

Nobody suggests that Mr. Macklowe caused the bricks to fall at 540 Madison. Still, it’s difficult for some people in Mr. Macklowe’s trade to believe that a developer who obsesses over countertops was completely in the dark about the city’s requisite inspection process. “Even in today’s environment, where people have to act even more quickly than they did in 1996, it’s unusual for a buyer to jump in without still doing substantial due diligence,” said a real estate executive whose company has done considerable business with Mr. Macklowe. “If Macklowe decided to forgo his due diligence because he felt pressured by the timing to get the deal done, that was a business decision he made-and he was wrong.” The city’s Department of Investigation is currently taking a hard look at the incident.

Nobody was seriously injured, but the disaster led to the closing of the street for several weeks, and a number of Mr. Macklowe’s neighbors say they lost considerable business. What’s more, some of them say he hasn’t made good on his pledge to cover their costs. “We have told all the residents and the businesses to bring us their receipts,” the developer said at a press conference. “We’ll pick up the expenses.”

Andrew Terzis, owner of the Persian Shop Inc., an oriental art dealers on the block, said he tried to take up the developer on his offer and got nowhere. “The bottom line is nobody gave us one red cent,” Mr. Terzis complained bitterly.

Mr. Macklowe responded that he has provided housing for some of the people who live on the block. But he admitted he’s had to change his strategy somewhat since the press conference. “We’re kind of caught in a bit of a quandary because of the insurance company’s reluctance to pay or make a commitment until they complete their investigation,” he said somewhat sheepishly.

Peter Morrell, chairman of Morrell & Company, a wine dealer on the block, isn’t surprised. He has known the developer for 25 years and didn’t see any point on taking up the developer on his offer to cover his business losses. “I just wish real estate moguls like Harry had a little more of a heart about the people who get caught up in their lives,” said Mr. Morrell. “It’s like Leona Helmsley saying, ‘Only the little people pay taxes.’ It’s like they think they are on another planet.”

Nancy Cassone, one of Mr. Macklowe’s tenants on East 53rd Street, feels similarly. Ms. Cassone said that after Mr. Macklowe bought her building last April, she saw some immediate changes. Mr. Macklowe’s company filed for a demolition permit with the state and bought out everybody it could in the two buildings. Then, according to Mr. Cassone and her lawyer, Mr. Gribben, his company launched a systematic harassment campaign against rent-stabilized holdouts like herself.

According to Ms. Cassone, someone removed the gates protecting the windows in vacant apartments and left them open so homeless people and drug addicts could enter. “It’s a common [building clearance] tactic,” said Michael McKee, policy director of the New York State Tenants & Neighbors Coalition.

“It’s malevolent neglect,” Mr. Gribben agreed. “He took a nice little apartment building and turned it into a crack den.”

Ms. Cassone said she and the other holdouts are at their wits’ end. But she said they can’t afford to lose their rent-regulated apartments.

Officials at the Macklowe Organization fiercely denied the harassment charges and said they have since bricked up the open windows. “These properties are probably better managed since we bought them than they were previously,” Mr. Cole insisted. Ms. Cassone and her attorney, however, insisted that the buildings have yet to be fully secured against trespassers.

For his part, Mr. Macklowe acted as if he were personally wounded that anyone could lodge such allegations against him. “You can’t believe that?” he said of the harassment charges. “How could that be?”

Harry Macklowe’s Back and Ready to Remake a Piece of 42nd Street