BLOG VIEW: Harry Macklowe’s 6th Avenue Heartache

Written by Jessica Lillian
on April 30, 2009 No Comments
Categories : Blog View

krupt retail REIT General Growth Properties may be the most visible fallen star in commercial real estate right now[/b], but as the recession continues to pummel every property type, landmark office properties seem to be fading into foreclosure one after another. The Equitable Building, a 33-story office tower in Atlanta, is scheduled to be auctioned off next week. The Atlanta-Journal Constitution recently reported that the building's owner, San Diego-based Equastone 100 Peachtree LLC, owes $52 million to Capmark Bank. Like many owners, Equastone is now underwater on its mortgage, having paid $56.8 million for the Equitable Building in May 2007 and is now holding property worth just $44.8 million, including land. Perhaps even more distressing is that this iconic tower is only half-leased right now and is home to no anchor tenants. Meanwhile, in New York, famed real estate developer and owner Macklowe Properties is watching yet another piece of its once-formidable commercial property empire disappear. Last week, Otera Capital, a subsidiary of the Caisse de depot et placement du Quebec, successfully bid via foreclosure auction on Macklowe's 1330 Avenue of the Americas, a 40-story office tower located between 53rd and 54th streets on Manhattan's 6th Ave. (Avenue of the Americas). Harry Macklowe purchased 1330 Avenue of the Americas for $498 million in 2006. In an intriguing coincidence, the transaction closed on the very same day that Broadway Partners signed its deal for the iconic (and also struggling) Hancock Tower in Boston, notes a recent Bloomberg article. Now, the two office buildings are experiencing parallel time lines once again. The foreclosure action on 1330 Avenue of the Americas was caused by a default on the mezzanine portion of the loan, according to a recent Bloomberg article. A few months ago, MortgageOrb analyzed the complex foreclosure case of the Hancock Tower (see [u][link=http://www.mortgageorb.com/e107_plugins/content/content.php?content.2872]’Tangled Up In Mezz: The New Commercial Foreclosure Snags'[/link][/u]) and pondered whether drawn-out court battles over conflicts of interest among holders of various mortgage debt slices would become commonplace. No signs, so far, point to any extended controversy over the foreclosure proceedings for either Atlanta's Equitable Building or New York's 1330 Avenue of the Americas. It is clear, however, that the combination of high leverage, sinking property values and eroding fundamentals will lead to more cases of iconic offices in trouble. Perhaps these big-name office foreclosure stories seem more alarming, individually, than your average residential foreclosure because of their steep price tags, dizzyingly complex financings, sheer physical size, and sparkling building appointments and features. As Otera Capital notes in a press release announcing its successful bid, 1330 Avenue of the Americas is ‘a unique Class A boutique office building located in the heart of the Rockefeller Plaza district in New York.’ Then again, the building was 31% vacant at the time of foreclosure. Superstar office status is no guarantee of immunity when prevailing conditions all but prevent the continued success of a property. ‘The abrupt downturn in commercial real estate is punishing cities as varied as Detroit, Dallas and Hartford, where downtown office vacancy rates top 20 percent,’ a recent BusinessWeek article noted. Alan Wexler, president of Databank, told the Atlanta Journal-Constitution that at least a quarter of deals like the one original struck for the foreclosure-saddled Equitable Building can expect to see problems in Atlanta. Moreover, recent data on the office sector support these foreboding predictions. ‘The vast majority of U.S. metropolitan economies are now in recession, and demand for office space has declined,’ states a report from Jones Lang LaSalle. ‘In the first three months of 2009, national leasing activity decreased 32 percent compared with the fourth quarter of 2008,’ the report notes. ‘Sublease space availability has jumped more than 33 percent over the past six months.’ – [b]Jessica Lillian[/b], [i]Commercial Mortgage Insight[

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