About the Author
Katherine Clarke is a reporter at The Wall Street Journal, where she covers the high-end real estate market across the United States. Previously, she wrote for the New York Daily News and The Real Deal.
Excerpt. © Reprinted by permission. All rights reserved.
Chapter 1
Saving Harry Macklowe
“Maybe we should take a walk?”
It was 2008, the depths of the global financial crisis, and Harry Macklowe had been stuck for hours at the Lower Manhattan offices of his law firm when his broker, a real estate power player named Darcy Stacom, suggested the septuagenarian might want to step outside and clear his head.
As Macklowe and Stacom headed for the doors, a team of lawyers and brokers stayed behind as they continued to hammer out the final terms of a deal Macklowe desperately didn’t want to make: the sale of the iconic General Motors building on New York’s Fifth Avenue.
The General Motors building, a gleaming marble-clad tower anchoring the southeast corner of Central Park, was the crown jewel of Macklowe’s real estate portfolio, which at one point included at least ten trophy office buildings in and around Midtown. Built in the 1960s by the architects Edward Durell Stone & Associates with Emery Roth & Sons, the building was a defining example of the International Style, characterized by clean rectilinear forms, and it appealed to Macklowe’s taste for what he deemed “architectural purity.” The firm he founded, Macklowe Properties, had beaten out at least a dozen other developers to buy it in 2003 for a record-breaking $1.4 billion, the most ever paid for a skyscraper in the United States, putting down only a $50 million deposit in a highly leveraged deal. He had then taken great pleasure in restoring its tasteful, stripped-down aesthetic by removing the big gold letters on its marble exterior that spelled out t-r-u-m-p, one of the former owners.
Initially, the real estate community had scoffed at the high price Macklowe paid for the tower, but he had proved them wrong when he unveiled a new glass cube at its base that would serve as the striking retail entrance for Apple’s latest New York retail store, which would attract around fifty thousand visitors per week in its first year. It was a feat of ingenuity that would double the value of the building but, more than that, would mark Macklowe’s entry into the New York real estate establishment. Each time he told the tale of the cube, Macklowe, a gifted raconteur, played an increasingly outsized role in its creation, alongside Apple founder Steve Jobs.
The coup at the GM building had stroked Macklowe’s ego as an architect, visionary, and taste maker. A slight man with a passing resemblance to Robert De Niro, Macklowe was used to living the high life, racing yachts in regattas off the coast of Sardinia and rubbing shoulders with the city’s elite in the Hamptons in his designer loafers and polka-dot scarves.
Following the unveiling of the Apple cube, he had made a celebratory splurge, paying $60 million for seven apartments at the famed Plaza hotel across the street from the GM tower with an eye toward combining them into one sprawling private residence where he could wake up each morning and admire his handiwork. The modernist architect Charles Gwathmey, known for designing homes for celebrities like David Geffen and Steven Spielberg, was tapped to design it. It would ultimately look more like an art gallery than a home.
It was when he was riding high on his success at the GM building, however, that he made another deal that would land him in the dire financial straits he now found himself in.
In 2007, the developer had completed a record-breaking, highly leveraged $7.25 billion transaction to buy eight trophy office buildings from the private equity giant Blackstone. It made the GM building price tag look like chump change. The deal, completed in just ten days at the height of what now appeared to have been a dizzyingly overheated pre-financial-crisis market, had dazzled the industry and cemented his reputation for having nerves of steel. Though some branded the deal as reckless, others saw it as the move of a visionary who, as in the case of the Apple cube, recognized opportunity where others did not. With the single deal, Macklowe had more than doubled the size of his real estate portfolio.
However, as the subprime mortgage crisis spilled over into the commercial real estate world, Macklowe struggled to find a lender willing to refinance a short-term, high-interest, multi-billion-dollar bridge loan he had secured from his lenders, Fortress Investment Group and Deutsche Bank, to buy the Blackstone portfolio. And, to make matters worse, he had pledged the General Motors building, among other properties, as collateral for more than $7 billion in debt used for the deal. Suddenly, Macklowe was being crushed by the weight of his debt and had no choice but to sell the GM building to get out from under it. His real estate empire was being torn apart, and with it his relationship with his wife, Linda, and his only son, Billy, whom he had appointed president of Macklowe Properties. Both resented the financial missteps that had led to this moment.
With his fortunes turned, along with those of most of the finance and real estate industries, an ashen-faced Macklowe had been forced to sit in a conference room with Linda and Billy as advisers shuttled back and forth between them and the bidders for the building. His son later described him as looking like “a deer in the headlights.”
Agreeing to clear his head, Macklowe strode outside with Stacom into a warm May evening, the kind that gets New Yorkers out on the street in droves after a brutally long winter. It was late, but tourists were strolling around Battery Park in search of a view of the Statue of Liberty, and commuters, some tipsy from after-work drinks on nearby Stone Street, were headed to their subway stops and ferries. He and Stacom, a tall blonde with a notoriously sharp tongue, strolled southward until Macklowe paused outside the Staten Island Ferry Terminal, looking up at the sleek, simple glass-walled building on the southern tip of the island of Manhattan.
Eager to change the subject from the matter at hand, Macklowe launched into an impromptu lecture on the building’s architecture. It was typical of Macklowe, who was always more interested in the romance of art and architecture than in the cold realities of the market. Stacom stopped him in his tracks. Enough was enough, she told him. By clinging to the General Motors Building, he was destroying his family and his reputation. It was time for him to stop, accept the loss, and rebuild.
Macklowe looked at the broker, his eyes moist with tears. “Is it really that bad?” he asked her.
“Harry,” she said, “it’s worse.”
The boy from New Rochelle had hardly been an overnight success. Macklowe had clawed his way into the real estate ranks over the course of decades.
He started as a college dropout. Confident and in a hurry to make his mark in the world of business, he had attended just one semester of college in Alabama in the mid-1950s. He had wanted to go to Yale but hadn’t been accepted there—or to any of the other “really good schools” he had applied to on the East Coast, he said. So he followed a school pal to Alabama. Just a few months later, he headed back to the city, chalking up his brief moment in the South as a life experience. “It was an entirely different culture. It wasn’t something that satisfied me, and I thought that I could do much better,” Macklowe said later. He did admit that there was one upside: It was in the South that he had discovered Dr Pepper.
Back in New York, he took a job as a trainee in a Madison Avenue advertising firm called Kudner, making $35 a week. It was a big firm, and Macklowe was the lowest on the totem pole. As a messenger traversing the city each day from the advertising agency headquarters at 575 Madison Avenue, he frequently whizzed past the art galleries that lined 56th and 57th streets. There were the galleries of Sidney Janis, Pierre Matisse, and others, and they provided as comprehensive a view of twentieth-century art as could be found almost anywhere in the world.
