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BL: Harry Macklowe to Sell GM Tower to Boston Properties (Update3)

By David M. Levitt

May 24 (Bloomberg) -- New York developer Harry Macklowe agreed to sell the General Motors Building and three other Manhattan skyscrapers to Boston Properties Inc. for $3.95 billion in cash and debt, to pay off delinquent loans.

Boston Properties will pay $1.47 billion in cash, assume about $2.47 billion of fixed-rate debt and issue $10 million in units of limited partnership interest, the company said in a statement. Goldman Sachs Group Inc. and Morgan Stanley are contributing an unspecified amount, the statement said.

The deal will retire the $1.4 billion Macklowe owes to Fortress Investment Group LLC, which made a $1.2 billion loan to him last year as part of his $7 billion acquisition of seven New York towers from Equity Office Properties Trust, said real estate broker Darcy Stacom. Macklowe had pledged the GM Building as collateral for that debt, which matured in February.

``In these capital markets, that is an extraordinary feat,'' she said in a telephone interview.

The transaction values the GM Building at almost $3 billion, making it the most expensive office building in the world, said Stacom, an investment sales broker for CB Richard Ellis Group Inc.

`A Great Address'

William Macklowe, Harry Macklowe's son and Macklowe Properties Inc. president, referred questions on the sale to Stacom. She represented the Macklowes on the GM Building, while Citigroup handled the negotiations on the other three.

``It's a great address to put on your letterhead,'' Lawrence Longua, director of the real estate investment trust center at the New York University Real Estate Institute, said in an interview yesterday. ``It's a special location -- across from the Plaza Hotel, Central Park.''

In 2006, Harry Macklowe lured Apple Inc. to open a store beneath the building plaza with a glass cube entranceway. Until then, the underground space had been difficult to lease.

Macklowe, who has been investing in New York real estate since the 1960s, used short-term debt that came due this year to buy the seven Equity Office buildings last year, at the peak of the market. All but $50 million of the $7 billion was borrowed.

Close Next Month

He was unable to refinance after access to bank financing dried up amid writedowns and losses by financial institutions worldwide of more than $300 billion in mortgage-related assets. He bought the towers the same day that Blackstone Group LP acquired Equity Office, the biggest U.S. real estate investment trust, for $39 billion, including debt.

The purchase of the GM building is expected to close next month, with the other buildings at 540 Madison Avenue, 125 West 55th Street and Two Grand Central Tower coming after that, Boston Properties said.

The sale of these four towers will leave Macklowe Properties a leaner company, positioned to grow, Stacom said.

``There's a ton of money coming in from offshore right now, but it doesn't have an operating base,'' Stacom said. ``You have the team that created the GM Building sitting with real capacity now.''

Boston Properties, chaired by New York Daily News owner Mortimer Zuckerman, has deposited a letter of credit for $165 million. Goldman Sachs and Morgan Stanley are advising Boston Properties and the other investors, along with Lehman Brothers Holdings Inc. and Deutsche Bank AG.

$150 a Square Foot

The GM building has about 2 million square feet (185,806 square meters) of rentable space, Boston Properties said. Office rents there are among the highest in the city, exceeding $150 a square foot. Tenants include investor Carl Icahn, the law firm Weil Gotshal & Manges LLP and the cosmetics maker Estee Lauder Cos.

Boston Properties, the biggest U.S. office REIT, will add about 3.5 million square feet to its 5.6 million square feet of Midtown properties, making it the biggest by size of the five markets in which it operates-- New York, Boston, San Francisco, Washington and the Princeton area of New Jersey.

Its New York skyscrapers include Citigroup Center, the city's sixth-tallest completed building, and 399 Park Ave., which is Citigroup's headquarters.

Deutsche Bank, Macklowe's senior lender, has taken control of his seven Equity Office acquisitions and has put them on the market.

They also include 1301 Avenue of the Americas, home of Dresdner Kleinwort New York, and Worldwide Plaza on Eighth Avenue, whose tenants include the law firm Cravath Swaine & Moore LLP.

To contact the reporters on this story: David M. Levitt in New York at [e-mail]
Last Updated: May 24, 2008 17:20 EDT