Real Estate Giant Macklowe In Danger Of Foreclosure
Nothing has been resolved as of yet while talks are still going on between real estate giant Harry Macklowe and his lenders regarding Manhattan office buildings. Harry purchased several Manhattan buildings in the previous year. Technically, the inconclusive talks place Macklowe in position of default although, according to reports, none of the lenders are going on through with the foreclosure process as of yet. In the following week, there is a chance that talks will resume. Macklowe’s spokesperson did not comment on the issue.
In February 2007, Macklowe borrowed $5.8 billion from Deutsche Bank to purchase seven office buildings in Manhattan area – properties that previously belonged to Equity Office Properties. Last week Macklowe struck a tentative deal that would turn over the units which he had purchased for $7 billion. The bank declined to comment on the report.
It is alleged that Macklowe owes the bank $5.8 billion due to acquisition financing or non-recourse. This would give Deutsche control of the buildings but not rights over the rest of Macklowe’s empire.
Macklowe, it seems, put in $50 million from his own resources but he is still short of $1.2 billion to repay a bridge equity loan he had taken from Fortress Investment Group. Macklowe purchased the units together with Blackstone Group LP’s acquisition of the Equity Office in 2007.
The crux of the problem for Macklowe is that the ongoing foreclosure crisis has all but wiped out easy debt financing. Lending has become much more difficult and costly. Commercial mortgage backed securities from CMBS have dried up. Banks are being besieged by the foreclosure crisis in residential sub-prime mortgages. This has left Macklowe in the lurch.
With fears of recession looming over everyone’s head, the future looks bleak for the commercial real estate market.
The market cannot be studied in isolation. The economy is like a line of dominos; one thing leads to another. There is a current snowballing effect on the sub-prime mortgage crisis, which is being felt all felt in all spheres of the economy. There is a strong protest against lenders although there are indications that, even before the 9/11 catastrophe, indications of the downward economic trend were visible to those with an experienced eye. There were job losses, divorces and illness. All joined hands with rising interest to create the foreclosure crisis. The government at all levels, communities and politicians are all pitching in to salvage the situation and bring back the country on its rails.
Interest costs on short-term debt and TIPS rise quickly in an inflationary environment and act as a constraint on the Fed