The Real Deal - August 2008 - (Page 45) THE CREDIT CRUNCH Who got crunched — and who didn’t A look at where players landed one year after the credit market debacle BY LAUREN ELKIES year ago this month the credit markets erupted, and since then it has been rough going. While the wheel of fortune always turns — there will forever be some real estate players on top while others take hits — this year many of the stories appear to be related to credit market woes. Because it is the anniversary month of the subprime mortgage crisis, A The Real Deal has chosen to look at some of the year’s biggest winners and losers. People whose stars have risen or fallen run the gamut from heads of real estate firms to architects to investors to individual real estate brokers to politicians. Every tale is instructive, but we decided to hone in on 25 of the most notable cases, limiting our scope to firms and entities with direct impact on the New York City area real estate market. Fortunes on the rise Mortimer Zuckerman, head of real estate investment trust Boston Properties, editor-in-chief of U.S. News & World Report, and chairman and co-publisher of the New York Daily News. In June, Boston Properties beat out other bidders and completed the acquisition of the General Motors Building from Harry Macklowe for approximately $2.8 billion, the highest price ever paid for a U.S. office building. Zuckerman also bought three other buildings from Macklowe, bringing the total sale to $3.95 billion. Zuckerman was able to do the deal by turning to sources few have access to in the current market — Middle Eastern investors. “It is no surprise that he was able to maneuver capital worldwide to make the deal happen,” said Adelaide Polsinelli, an associate vice president of investments at Marcus & Millichap. It also set an example for investors on how creative one needs to be to get deals done in a tumultuous and unpredictable capital market.” William “Billy” Macklowe, recently ascended to chairman and CEO of Macklowe Properties. While the Macklowes have obviously seen their empire diminish, it was the son who was instrumental in saving the family firm and is now charged with rebuilding it. Not long after his father, real estate titan Harry Macklowe, got into trouble trying to pay back loans he took out to purchase seven Midtown buildings last year, Billy Macklowe took the reins, and his father became chairman emeritus. (Billy Macklowe had been the president of the company.) Billy Macklowe was publicly critical of his father’s decision to buy the seven buildings, according to the New York Times. He is seen as more conservative than his risk-taking father. After Harry Macklowe, as head of the company, defaulted on a $1.2 billion bridge equity loan from the Fortress Investment Group, Billy Macklowe negotiated a partial payment plan on behalf of the company, Portfolio magazine said. He also was instrumental in the sale of the General Motors Building to avoid the company’s financial collapse. According to spokesman Steve Solomon, Macklowe is “focused on overseeing the development” of office building 510 Madison Avenue and the redevelopment of another office tower, 1330 Sixth Avenue. He added: “Long range, he hopes to rebuild the Macklowe real estate portfolio with Class A properties and remain one of the preeminent owner/developers and managers of commercial and residential real estate in Manhattan.” (See Harry Macklowe.) Albert Behler, CEO of real estate firm Paramount Group. Paramount has been able to put together some of the biggest buys since the credit crunch hit, making the priciest building purchase ever Downtown by buying 60 Wall Street for $1.2 billion on the cusp of the credit crunch. Paramount Group was in talks to buy 1301 Sixth Avenue from Harry Macklowe’s distressed portfolio for $1.5 billion, according to media reports, which would be the second largest deal of the year, behind the G.M. Building. (See Harry Macklowe and Darcy Stacom.) Last year, the company purchased 31 West 52nd Street for around $600 million, one of the biggest buys to happen in Manhattan just after the credit markets imploded. 1301 Sixth Avenue David Schechtman, senior director of Eastern Consolidated’s turnaround and distressed group. A former bankruptcy lawyer, and part of perhaps the only — or at least the most visible — local brokerage company with a dedicated group handling smaller distressed loans and real estate deals, Schechtman has benefited from a rise in the amount of distressed properties. Prior to that, he had to subsidize his distressed loan business with ordinary real estate deals. “There wasn’t enough distress to support me,” Schechtman said. He said last month that he has seen exponential growth in his business in the previous 12 to 16 weeks. He has been hired exclusively to sell several loans and said he is able to tap into the firm’s Rolodex of “a lot of under-the-radar high-networth individuals and institutions.” Another source of revenue is the mezzanine loans that are now coming due. “I’m sorry that banks and their investors are losing money on some of the risks that they took in the last few years, but I’m happy that we’re able to mitigate their losses,” he said. Arthur and William Lie Zeckendorf, founders of Zeckendorf Realty, and owners and co-chairmen of Terra Holdings, parent company of Halstead Property and Brown Harris Stevens. The brothers’ 15 Central Park West condo development has been a huge success, drawing a list of high-profile buyers including Sting, Denzel Washington and hedge-fund manager Daniel Loeb and achieving staggering sales prices in a down market. The 202-unit project sold out for around $2 billion before the building was constructed. Recently the building, where apartment resale prices are more than double the original price paid, has benefited from the continued strength of the luxury market. When asked how 15 Central Park West has been able to achieve such jaw-dropping prices, William responded: “It’s been well-received and well-delivered, and the market’s reacted strongly to what Zeckendorf Development created in conjunction with Robert A.M. Stern.” The Zeckendorfs are working on a project near the United Nations, which William said was “progressing.” Andrew Cuomo, New York State attorney general since 2006. Eliot Spitzer may have been called the Sheriff of Wall Street, but since taking office last year, Cuomo has done his share of eliciting change. In contrast to Spitzer, who was often called out for targeting individuals, Cuomo is focused on making “systemic reforms,” according to the New York Times, and has vowed to crack down on shoddy developers. Currently, Cuomo is trying to catch up on backlogged condo construction complaints; his proposal to increase developer filing fees is awaiting passage in the state Legislature. Should it pass, the funds would be allocated to the attorney general’s Real Estate Finance Bureau for hiring and enforcement. He’s gotten a good reception from some for how he has tackled reforms in the face of the subprime crisis. In March, Cuomo, who is knowledgeable about housing from his cabinet stint at the Department of Housing and Urban Development, moved to restore the credibility of appraisers through an agreement with Fannie Mae and Freddie Mac. The companies agreed to adhere to a code that attempts to eliminate bias in appraisals. Cuomo has taken a number of other steps to root out appraisal fraud, issuing subpoenas and filing a suit against companies suspected of price inflation. Also, Cuomo is looking at the role of investment banks in the subprime crisis. www.TheRealDeal.com August 2008 45 http://www.TheRealDeal.com
Table of Contents Feed for the Digital Edition of The Real Deal - August 2008 The Real Deal - August 2008 Lucky few try for more Short on age, long on deals Upping fees to match expectations Can I get the door, hipster? Stitching up a residential neighborhood The Credit Crunch When comps fall short Looking Back National Deal Sheet summary The Real Deal - August 2008 The Real Deal - August 2008 - The Real Deal - August 2008 (Page 1) The Real Deal - August 2008 - Short on age, long on deals (Page 18) The Real Deal - August 2008 - Can I get the door, hipster? (Page 20) The Real Deal - August 2008 - Stitching up a residential neighborhood (Page 42) The Real Deal - August 2008 - The Credit Crunch (Page 45) The Real Deal - August 2008 - The Credit Crunch (Page 46) The Real Deal - August 2008 - When comps fall short (Page 50) The Real Deal - August 2008 - Looking Back (Page 56) The Real Deal - August 2008 - National (Page 66) The Real Deal - August 2008 - Deal Sheet summary (Page 99)
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