Finance Institutional Investment
May 21, 2008
By: Amanda Marsh, Associate Editor
An investment group including Boston Properties Inc., Goldman Sachs Group Inc. and two Middle Eastern investors is in negotiations to buy Manhattan's 1.8 million-square-foot General Motors building at 767 Fifth Ave.--along with other properties--from embattled New York developer Harry Macklowe for between $3.6 million to $3.9 billion, according to reports.
The pending deal--first reported by the Wall Street Journal today--values the GM Building (pictured) at approximately $2.75 billion, giving Macklowe up to $1.8 billion to pay off debt and taxes, according to Lois Weiss of the New York Post, who cited the other four properties in the deal as Two Grand Central Tower, 510 Madison Ave., 540 Madison Ave. and 125 E. 55th St. Although the price for the GM Building is lower than anticipated, it almost doubles the $1.4 billion Macklowe paid to Conseco upon the building's 2003 acquisition. At that time, it was the largest-ever single-asset real estate transaction in U.S. history.
But the situation still has a chance of falling apart and other bidders could emerge, according to people familiar with the deal who spoke with the WSJ. These sources did report, however, that discussions are serious enough that the possible buyers have contacted lenders on the GM Building to discuss assuming the asset's existing debt and possibly modifying loan terms. A source told CPN in February that New York-based Silverstein Properties was also in the potential buyers' ring, offering more than $3 billion for the GM Building.
Macklowe Properties and Boston Properties could not be reached by deadline. CB Richard Ellis Inc., which is marketing the GM Building for Macklowe, declined to comment.
Mortimer Zuckerman, chairman of the board of directors for Boston Properties, remained vague on the Macklowe transaction during the company's first quarter earnings call on April 30, noting that the company has a history of looking a premier properties that may fit very well into the company's portfolio, yet also has a history of not commenting on potential transactions that are highly speculative until the company has something substantive to say. He added that it would be a complicated transaction for whomever makes it.
The trophy buildings included in the possible transaction, as well as the tenant base, are consistent with purchases Boston Properties has made in the past, Woody Heller, executive managing director & group head of Studley Inc.’s capital transactions group, told CPN.
Macklowe Properties faced a $7 billion debt on a portfolio of office buildings it acquired last year from Equity Office Properties Trust. To pay for the acquisition, the company used a complex financing package that included a $5.8 billion short-term loan from Deutsche Bank AG, $1.2 billion from Fortress Investment Group L.L.C. and $50 million in equity from Macklowe himself. But the credit crunch soon hit, and Macklowe found it impossible to refinance the loans, which had matured in February. That month, he secured agreements with the lenders to extend the repayment deadline, and put the GM Building on the market as one of the measures to pay down the debt.
And selling to a REIT such as Boston Properties would make sense for Macklowe, a source told CPN, noting that Macklowe will be able to realize cash from the process and defer taxes on the gain in order to pay down this debt.
If the deal does go through, it will be a shot in the arm for the volatile real estate market. "This gives buyers and lenders a vote of confidence and shows that there is still a lot of life left in the New York City market," said Ronald Solarz, executive managing director & principal for Eastern Consolidated, who was not involved in the deal.
“Having these transactions behind us will set the pace for pricing and the balance of the market,” Heller added.
By: Amanda Marsh, Associate Editor
An investment group including Boston Properties Inc., Goldman Sachs Group Inc. and two Middle Eastern investors is in negotiations to buy Manhattan's 1.8 million-square-foot General Motors building at 767 Fifth Ave.--along with other properties--from embattled New York developer Harry Macklowe for between $3.6 million to $3.9 billion, according to reports.The pending deal--first reported by the Wall Street Journal today--values the GM Building (pictured) at approximately $2.75 billion, giving Macklowe up to $1.8 billion to pay off debt and taxes, according to Lois Weiss of the New York Post, who cited the other four properties in the deal as Two Grand Central Tower, 510 Madison Ave., 540 Madison Ave. and 125 E. 55th St. Although the price for the GM Building is lower than anticipated, it almost doubles the $1.4 billion Macklowe paid to Conseco upon the building's 2003 acquisition. At that time, it was the largest-ever single-asset real estate transaction in U.S. history.
But the situation still has a chance of falling apart and other bidders could emerge, according to people familiar with the deal who spoke with the WSJ. These sources did report, however, that discussions are serious enough that the possible buyers have contacted lenders on the GM Building to discuss assuming the asset's existing debt and possibly modifying loan terms. A source told CPN in February that New York-based Silverstein Properties was also in the potential buyers' ring, offering more than $3 billion for the GM Building.
Macklowe Properties and Boston Properties could not be reached by deadline. CB Richard Ellis Inc., which is marketing the GM Building for Macklowe, declined to comment.
Mortimer Zuckerman, chairman of the board of directors for Boston Properties, remained vague on the Macklowe transaction during the company's first quarter earnings call on April 30, noting that the company has a history of looking a premier properties that may fit very well into the company's portfolio, yet also has a history of not commenting on potential transactions that are highly speculative until the company has something substantive to say. He added that it would be a complicated transaction for whomever makes it.
The trophy buildings included in the possible transaction, as well as the tenant base, are consistent with purchases Boston Properties has made in the past, Woody Heller, executive managing director & group head of Studley Inc.’s capital transactions group, told CPN.
Macklowe Properties faced a $7 billion debt on a portfolio of office buildings it acquired last year from Equity Office Properties Trust. To pay for the acquisition, the company used a complex financing package that included a $5.8 billion short-term loan from Deutsche Bank AG, $1.2 billion from Fortress Investment Group L.L.C. and $50 million in equity from Macklowe himself. But the credit crunch soon hit, and Macklowe found it impossible to refinance the loans, which had matured in February. That month, he secured agreements with the lenders to extend the repayment deadline, and put the GM Building on the market as one of the measures to pay down the debt.
And selling to a REIT such as Boston Properties would make sense for Macklowe, a source told CPN, noting that Macklowe will be able to realize cash from the process and defer taxes on the gain in order to pay down this debt.
If the deal does go through, it will be a shot in the arm for the volatile real estate market. "This gives buyers and lenders a vote of confidence and shows that there is still a lot of life left in the New York City market," said Ronald Solarz, executive managing director & principal for Eastern Consolidated, who was not involved in the deal.
“Having these transactions behind us will set the pace for pricing and the balance of the market,” Heller added.
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