http://www.crainsnewyork.com/article...TATE/309259972
Harry Macklowe's second coming
After a titanic fall, real estate developer Macklowe is back and looking for a little redemption.
By Theresa Agovino
September 25, 2011 5:59 a.m.
Harry Macklowe's once-vast real estate empire already lay in tatters in the spring of 2010. That's when he suffered another major blow. His son William announced he was leaving, taking many of the family firm's key staffers and its last two properties with him to start his own outfit.
Now, improbably, Harry's back. He's in the midst of one of the most difficult acts in his 50-year career—trying to pull off what would be his second comeback. Since January, the 74-year-old developer has hired four senior executives, bought two Upper East Side apartment buildings he plans to convert to condos, and purchased a loan that he hopes to use to gain ownership of a midtown development site. Meanwhile, he's pushing ahead with plans to construct a mixed-use high-rise on Park Avenue and East 56th Street, bringing on famed architect Rafael Viñoly to design the project on what is considered Manhattan's most valuable development site.
“I always knew Harry would be back,” said Paul Massey, a founding partner of Massey Knakal Realty Services, who has known him for two decades.
Nothing illustrates Mr. Macklowe's rebound better than his involvement at the Park Avenue plot that was once home to the Drake Hotel. Mr. Macklowe spent years assembling the site, only to default on its $510 million loan. The loan was purchased by the CIM Group, which went on to secure control of the site but joined forces with Mr. Macklowe, who is helping develop the project.
Sources say it will include a 1,350-foot tower with condominiums and a small hotel, as well as a 60,000-square-foot glass-cube retail space on tony East 57th Street.
Neither Mr. Macklowe nor CIM would comment for this story. But at a conference recently, Mr. Macklowe predicted that the Park Avenue development would be “a capstone” of his career.
“It will be a monumental building and as much an icon as the Apple cube,” said Mr. Macklowe, who earned kudos for bringing that very store to the General Motors Building back when he owned it. “As I go forward doing my new deals, I'm very pleased to be an active part of our real estate community.'
Many others confess they're amazed to see him back, given the titanic scale of his downfall.
At the top of the market in 2007, after a month's deliberation he bought seven buildings for $7 billion, and lost them after he failed to refinance them. Later, he had to part with four others, including his prized GM Building, to pay off his debts.
Mr. Macklowe referred to the debacle as “a very, very bad bet.”
His latest wagers may be bold, but they are also far more modest. He paid a mere $70 million for 150 East 72nd St., a handsome prewar building on the corner of Lexington Avenue, where he plans to convert 33 rental apartments units into condos. Just last month, he shelled out a hefty $253 million for 737 Park Ave., where he hopes to convert 103 apartments.
Backdoor strategy
Additionally, Mr. Macklowe bought a defaulted loan on a development site on First Avenue in the East 50s with partner Howard Lorber. Sources said the partners intend to foreclose on the owners and take full control.
Mr. Macklowe has also rebuilt his team of development professionals. Each of his four executive hires brings a specific expertise: marketing, sales, finance or construction. Most notably, the team includes broker Richard Wallgren, who played a big role in one of the city's most successful condominium projects, 15 Central Park West.
Mr. Macklowe brings an expertise in comebacks. In the 1980s he became infamous for ordering the late-night demolition, without permits, of two single-room occupancy hotels near Times Square hours before a law protecting them was set to go into effect. He eventually lost the hotel he built on that site as well as other buildings in the real estate recession of the early 1990s, only to emerge in spectacular fashion in 2003 by paying $1.4 billion for the GM Building.
Plenty of partners
Today he continues to draw partners despite his checkered past because of his extensive experience and mastery of the city's byzantine development process. He also won plaudits from some insiders for not attempting to hang onto his properties through bankruptcy or lawsuits during his latest implosion.
“He behaved like a gentleman,” said Martin Frass-Ehrfeld, a partner at London-based Children's Investment Fund, which had enough faith in Mr. Macklowe to lend him $250 million to purchase 737 Park Ave. “He was unlucky.”
This time around, he is still running some big risks. Even if he forecloses on the First Avenue site, the developer may struggle to line up construction financing. Ditto on a far grander scale for his project with CIM on Park Ave.
Experts say his pricing strategy for his East Side apartments is aggressive. According to documents filed with the state attorney general's office, Mr. Macklowe is asking an average of $2,700 a square foot for 737 Park and $2,500 a square foot for 150 East 72nd. Comparable apartments fetch about $1,900 a square foot.
Meanwhile, nearly a third of the units at 737 Park and a quarter of those at 150 E. 72nd are rent regulated. Selling expensive condo units in buildings with high levels of rent-regulated tenants is always challenging. They can be a turn-off to people spending millions of dollars on posh abodes.
“When people pay those prices, they want to live with others with skin in the game,” said Mr. Miller.
And Manhattan has a history of ugly, long, litigious conversion battles. Mr. Macklowe may find himself in one such drama. Earlier this month, he filed a suit against a couple who refuse to leave a market-rate apartment at 737 Park Ave., even though their lease is up.
A version of this article appeared in the September 26, 2011 print issue of Crain's New York Business.
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