By Daniel Geiger
After getting sucked into the eye of one of Manhattan’s most memorable meltdowns, William Macklowe said he would use conservative leverage levels and target smaller office buildings in his recently launched real estate investment company.
The company acquired 636 Sixth Avenue in partnership with the institutional money manager ING Clarion in January for $45.2 million. Macklowe said that the purchase is a template for the types of transactions he was looking to do with his new venture.
“We liked the asset and liked the submarket,” Macklowe said, speaking on Wednesday afternoon at a luncheon held in midtown by the Young Men and Women’s Real Estate Association. “To take an uptown style of style of management and ownership and bring it to a market where you have the existence of professional landlords, but an absence of a true Class A style of ownership, we felt we could increase velocity and set new standards for rental achievement.”
The building is a far cry from Macklowe’s previous investment activity. Working with his father, Harry Macklowe, who is known as one of the city’s most successful and daring investors, the father and son partnership built one of the city’s most valuable real estate portfolios. The last time Macklowe spoke in front of the Association, it was the start of 2007, and he and his father had just completed one of the biggest ever acquisitions in the city, a $7 billion acquisition of seven midtown skyscrapers.
During that meeting, Macklowe described the specifications and amenities of 510 Madison Avenue, a boutique office building that the pair developed for high end financial tenants who would pay exorbitant rents. Macklowe envisioned an office market that would continue to climb from the peak values at that time, mentioning then that he felt prices per s/f could chart to $1,800 per s/f by 2008. Instead, credit markets collapsed, the economy slipped into a deep recession, and the Macklowe’s had to hand back not only the seven building portfolio back to the bank, but other assets they owned, including the prize of their portfolio, the General Motors Building, which they had to sell to raise cash to pay off debts. Last year, Boston Properties purchased 510 Madison Avenue, after the property was caught in a length battle with lenders eager to seize the property.
While he and his father used high leverage levels to build a trove of real estate holdings that were the envy of the industry during the period of easier credit, Macklowe described a far different acquisition market today in which buyers like himself have been edged out of major transactions because of the tigher credit.
“The big deals in the market have been institutional purchases,” Macklowe said. “The real core investors will not work with operating partners such as ourselves, they can’t, the deals are too thin, they have to own them for themselves.”
Macklowe said that as a result, he had turned his focus to buildings like 636 Sixth, assets in the range of $100 to $150 million.
Last year Macklowe broke from his father’s real estate firm, Macklowe Properties and started his own investment shop, William Macklowe Company. He said that he would employ conservative leverage levels than he and his father had used in the past.
“Our business will be built on a different risk profile,” Macklowe said. “We’re trying to be [in the] 50% to 65% loan to value model, very simple, balance sheet-driven vanilla [financing], nothing exotic or mezzanine driven. Stuff that supports through the vagaries and volatilities of markets, because we all know those events exist and do happen.”
Macklowe spoke fondly of his father during the talk. As the pair weathered their enormous problems during the recession, rumors swirled of a fued between the two.
“I was very blessed and fortunate to spend 25 years working for and then with my dad,” said Macklowe, who was upbeat during the meeting, cracking jokes and displaying his much-publicized wit. “My dad built an extraordinary collection of assets, he did it before me and then with me. We did a lot of really great things together. I think there’s a fundamental difference between us, where he was able to have that great experience of building something. I never had that, and now it’s my turn to do that, so i’m very fortunate to have that skill set and that legacy behind me and lessons learned both positive and negative.”