Reckoning for a Real Estate Mogul p.2

"When you walk into the GM Building, you get a good feeling," Harry Macklowe says as he sits confidently in the Macklowe Properties office on its 21st floor. It's early January, only a week or so before he decided to put it up for sale. You'd never know he is staring over the edge of a precipice. Maybe it's the setting that gives him his cool. The views are breathtaking. The Plaza hotel looms outside the window on the other side of Fifth Avenue. Beyond the famous hotel, you can see deep into Central Park. This is part of the reason tenants like private equity's Thomas H. Lee and former Citigroup CEO Sandy Weill pay an average of $150 a square foot to be here.

Macklowe speaks in a whisper; somehow that makes his banter even funnier. He calmly insists that he'll have no problem finding new sources of money to help refinance the skyscrapers from the Blackstone deal: "We still have a very good future. They are very good, glamorous investments." Macklowe also says there are no tensions with Deutsche Bank or Fortress. "We're not fighting with anybody. Nobody's fighting with us."

Only his son Billy seems slightly unnerved by the predicament he and his father are in. Unlike his father, who is slightly disheveled, Billy is perfectly coiffed; his pinstripe suit is impeccably tailored. According to court records, Harry used to ride Billy so hard, thinking his son didn't work strenuously enough, that they ended up in counseling together. (Howard Rubenstein, spokesman for the Macklowes, says Billy's desire for "more responsibility" was the reason for any tension.) Now Billy is Harry's right-hand man. Still, the scion sounds out of his depth as he dismisses the suggestion that the Macklowes are in deep trouble. "We always maintained it was interim acquisition financing," he says, his jaw clenched tightly. "We had a plan to provide for a long-term capital solution. The events in August have slowed the process down. But it's still a process, and it's one that we are moving forward on." His dad probably gets further in a pinch with his charm and his bent sense of humor. Harry's friends, by the way, say he does great impressions.

It's hard to overstate how important the GM Building is to Macklowe's psyche. He could have retired years ago if all he cared about was personal wealth. He and Linda have long been members of the social set that rotates between Manhattan and the Hamptons. She's on the board of the Guggenheim Museum, and they are avid art collectors. Harry named his yacht Unfurled after a series of paintings by Morris Louis, one of which he owns.

On the water as on land, Macklowe's unquenchable ambition gets him in trouble. In 1976, U.S. Sailing, the sport's national governing body, banned him from yacht racing for an unspecified period of time. Why? A U.S. Sailing spokeswoman says the developer aimed his boat threateningly at another vessel after the boat's owner called Macklowe on a rules violation and caused him to be disqualified from a race in Newport, R.I.

Macklowe has been even more competitive in the real estate business - and more successful too. As a young commercial broker in the early '60s, he watched with awe as the General Motors Building rose on the southeast corner of Central Park. "Harry's goal was always to own the GM Building," says Steve Ifshin. Ifshin, the founder of DLC Management, is a shopping center builder who got his start with the developer. Macklowe doesn't deny that was his ambition.

By the '80s the onetime broker was well on his way to becoming a leading New York developer. He leveraged himself to the hilt and built residential towers on the Upper East Side, sleek office buildings in Midtown, and a luxury hotel in Times Square called the Hotel Macklowe.

But his aggressiveness got the better of him. He became known as the city's foremost black-hatted developer after ordering the "midnight demolition" of four buildings in Times Square, an act that the New York Times called "white-collar vandalism." One of his former employees pleaded guilty to reckless endangerment, but Macklowe came out of this debacle only slightly scathed. Although he was fined $2 million by the city, he was cleared by the Manhattan district attorney, says his spokesman. Meanwhile, his namesake hotel rose on the demolition site. The victory was fleeting. The real estate market fell apart at the end of the decade. Macklowe's bankers called in his loans. New York's old-line real estate families, who felt their profession had been tarnished by his Times Square shenanigan, hoped they'd seen the last of him.

Unlike today, however, Macklowe was then borrowing from the likes of Chemical Bank and Manufacturers Hanover. Those banks didn't want more distressed assets on their books. They were lenders, not real estate guys. In the end Macklowe's bankers reluctantly took back five of his buildings - including the Hotel Macklowe. The negotiations dragged on for several years-giving him time to restructure his remaining holdings and raise money for a comeback.

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Maclowe was back in business by the end of the early-'90s recession, and the way he handled his bankers during the latter part of that decade is a cautionary tale for the crew at Fortress who think they have the old guy cornered. Back in 1998, Macklowe set out to build a skyscraper at 42nd Street and Madison Avenue, which he planned to finance in part with a public offering that would have valued his real estate company at $520 million.

Then disaster struck again. The developer was forced to scotch his IPO after the Russian debt crisis set off a global economic panic that sent real estate company stocks into a tailspin. Macklowe had counted on funds from the IPO to repay $331 million he'd borrowed from Credit Suisse First Boston to fund several projects, including that proposed building on Madison Avenue, which would have been his largest project in years.

A two-year-long struggle ensued. Credit Suisse (CS) foreclosed and tried to take back Macklowe's development site. So the mogul moved the deed into a shell company he controlled, where his creditor couldn't reach it. Even after he was forced to relinquish the property, Credit Suisse accused him of purposely delaying its efforts to sell the site and get its money back. (Macklowe's lawyers scoffed that these were "false assertions and misstatements.") Two former Credit Suisse bankers confirmed that he also got the bank to give up valuable equity stakes it held in two of his buildings pledged as collateral to the bank.

Once again, Macklowe had extracted himself from a tight spot. Yet after decades in the business he was still a second-tier player in New York's real estate oligarchy. In truth, the developer was better known for his late-night Times Square demolition than for his skills. That changed when he bought the General Motors Building from the bankrupt insurer Conseco in 2003. He was willing to pay the hefty $1.4 billion price because he'd already come up with the idea for the Apple store - a move that Mitchell Moss, a professor of urban policy and planning at New York University, today calls "one of the best examples of real estate ingenuity in the city."

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