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Old November 19th, 2009, 02:10 PM   #1
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NEW YORK| 440 Park Ave.| Demo



November 18, 2009
Square Feet

Drake Hotel’s Prime Space Remains Undeveloped

By TERRY PRISTIN

Enclosed by a dark brown fence, the weedy lot at Park Avenue and 56th Street in Midtown Manhattan is a conspicuous reminder of how ambitions were shattered in the recent real estate debacle. This vacant site, where the Drake Hotel once stood, is likely to leave a gash in the middle of the nation’s costliest office submarket for years to come, real estate specialists say.

Manhattan has 79 other stalled construction sites but probably none to rival the Drake in location. “It is inarguably the best development site in the country and possibly the world,” said Woody Heller, an executive managing director at Studley, a real estate brokerage company. Just north of the site is 450 Park Avenue, an office building that traded in 2007 for a record price of $1,566 a square foot.

In 2006, the New York developer Harry Macklowe bought the elegant Drake Hotel, opened in 1926, for $418 million, or about $847,000 a room. He tore it down the next year and planned to replace it with a 550,000-square-foot L-shaped building with luxury condominiums, an even more elegant hotel and Manhattan’s first Nordstrom store.

The cost of acquiring additional properties to assemble the site increased the project’s cost to at least $724 million, or about $1,300 a square foot before construction, brokers said. They say it is difficult to gauge its current value because the market in Manhattan has fallen so far, and few transactions have occurred.

To shore up his position in the deal, Mr. Macklowe made a huge personal investment in the project by paying off $156.3 million in certain loans in October 2007, which raised his stake in the project to $250 million. In court papers, Mr. Macklowe and his son, William, now the chief executive of the family business, said they invested their personal assets in the Drake site because of repeated assurances from Deutsche Bank that the bank would refinance their loans when they matured in November 2007. But the loans were not refinanced, and the Macklowes defaulted.

Not long afterward, the Macklowes lost a major portion of their real estate empire. Without a fight, they gave up control of seven Midtown office buildings that they had acquired at the peak of the boom, and a few months later, they sold their prized General Motors Building, on Fifth Avenue at 59th Street.

But the Macklowes are tenaciously clinging to the Drake project and have told people they are determined to see it developed, most likely with a financial partner, even if they have to wait for years. Several brokers said the continuing involvement of Mr. Macklowe, who is considered highly creative but also litigious and a tough negotiator, adds a layer of complications.

In August 2008, Mr. Macklowe’s longtime lender, Deutsche Bank, sued to foreclose on loans for the hotel site and for nearby properties. Mr. Macklowe bought unused development rights, known as air rights, to eight townhouses on 57th Street to be able to add height to the building. He also sought to buy the townhouses themselves to give Nordstrom frontage on 57th Street opposite the Four Seasons Hotel but was only partly successful.

Mr. Macklowe paid a record average price of $520 a square foot for the air rights, according to a case study by two recent graduate students at Columbia, Travis B. Olsen and Evan Woolley.

If the Macklowes’ construction plans were complex, the financing was even more convoluted. Deutsche Bank sliced the $559 million Drake loan into 21 separate pieces, each with a different level of risk. The bank kept about $12 million of the loan and sold the rest to eight investment groups, earning tens of millions of dollars in fees.

Citing a lawsuit, the Macklowes declined to comment publicly on the Drake. But in court documents, they accused the bank of lying to them and betraying their trust “by making false promises it never intended to keep.”

Sounding like a jilted lover, they said the bank “strung Macklowe Properties along until Deutsche Bank got what it wanted, then refused to honor its commitments — benefiting handsomely from its willfully dishonest, deceptive, bad faith and fraudulent conduct at Macklowe Properties’ expense.”

If the bank succeeds in foreclosing, the Macklowes’ investment “will almost certainly be a total loss,” they said. Deutsche Bank did not respond to requests for comment.

Despite the foreclosure suit, the Macklowes hold some cards, brokers say. In April 2007, they agreed to pay $47.5 million for a townhouse at 46 East 57th Street, where the luxury jeweler Buccellati is a tenant. The sale has not closed. If it does, it is possible that the Macklowes may successfully argue that this building — and others — are not part of the loan collateral, thus ensuring a role for themselves, according to real estate executives familiar with the Drake site.

In addition to leaving a big hole on Park Avenue, the stymied development has also had repercussions for a fancy shopping strip around the corner from the site that was intended to be included in the Macklowe project.

The town houses are still standing, but several of the storefronts are vacant. At 44 East 57th Street, which was the home for 60 years of Dalva Brothers, a store that specialized in 18th-century furniture, a cracked window is patched with duct tape and cardboard boxes are piled up inside.

The Macklowes paid Dalva $2.2 million to move uptown. They also paid $19.2 million to buy the lease of the Swiss watchmaker Audemars Piguet at 40 East 57th Street and move the store to the north side of 57th Street.
But the Macklowes did not succeed in putting all the parts together.

Nordstrom, which had signed a letter of intent to build a store with 253,500 square feet, backed out after the Macklowes failed to acquire all the buildings needed to create the 57th Street entrance.

One holdout is Turnbull & Asser, a men’s clothing store where shirts start at $275. It had been in contract to collect $33 million for moving from 42 East 57th Street to another town house, according a document prepared by Cushman & Wakefield. But in May 2008, the owner of Turnbull & Asser, Ali al-Fayed, exercised his option to buy the building from the previous owner for $31.5 million. Now, said Louis Verde, the manager, “we’re not going anywhere.”

Another holdout is Jacob the Jeweler at 50 East 57th Street, which reportedly demanded $100 million to move. The company had no comment.

Last year, iStar Financial, a real estate investment trust in New York that holds the largest chunk of the senior debt on the Drake, tried to sell its $224 million note at a discount. When the bids came in well below the $160 million asking price, iStar took it off the market.

But Jeffrey W. Baker, an executive managing director at Savills, a mortgage brokerage, said prospects for such deals were improving. Several of his overseas clients have shown interest in acquiring the Drake loan with the intention of gaining control of the property, he said.

“While the complexities and risks of the deal have reduced the number of potential buyers significantly,” near bottom and that now is the time to acquire trophy U.S. assets at bargain prices.” Mr. Baker said, “the growing consensus overseas is that market conditions are November 18, 2009
Square Feet

Drake Hotel’s Prime Space Remains Undeveloped

By TERRY PRISTIN



Enclosed by a dark brown fence, the weedy lot at Park Avenue and 56th Street in Midtown Manhattan is a conspicuous reminder of how ambitions were shattered in the recent real estate debacle. This vacant site, where the Drake Hotel once stood, is likely to leave a gash in the middle of the nation’s costliest office submarket for years to come, real estate specialists say.

Manhattan has 79 other stalled construction sites but probably none to rival the Drake in location. “It is inarguably the best development site in the country and possibly the world,” said Woody Heller, an executive managing director at Studley, a real estate brokerage company. Just north of the site is 450 Park Avenue, an office building that traded in 2007 for a record price of $1,566 a square foot.

In 2006, the New York developer Harry Macklowe bought the elegant Drake Hotel, opened in 1926, for $418 million, or about $847,000 a room. He tore it down the next year and planned to replace it with a 550,000-square-foot L-shaped building with luxury condominiums, an even more elegant hotel and Manhattan’s first Nordstrom store.

The cost of acquiring additional properties to assemble the site increased the project’s cost to at least $724 million, or about $1,300 a square foot before construction, brokers said. They say it is difficult to gauge its current value because the market in Manhattan has fallen so far, and few transactions have occurred.

To shore up his position in the deal, Mr. Macklowe made a huge personal investment in the project by paying off $156.3 million in certain loans in October 2007, which raised his stake in the project to $250 million. In court papers, Mr. Macklowe and his son, William, now the chief executive of the family business, said they invested their personal assets in the Drake site because of repeated assurances from Deutsche Bank that the bank would refinance their loans when they matured in November 2007. But the loans were not refinanced, and the Macklowes defaulted.

Not long afterward, the Macklowes lost a major portion of their real estate empire. Without a fight, they gave up control of seven Midtown office buildings that they had acquired at the peak of the boom, and a few months later, they sold their prized General Motors Building, on Fifth Avenue at 59th Street.

But the Macklowes are tenaciously clinging to the Drake project and have told people they are determined to see it developed, most likely with a financial partner, even if they have to wait for years. Several brokers said the continuing involvement of Mr. Macklowe, who is considered highly creative but also litigious and a tough negotiator, adds a layer of complications.

In August 2008, Mr. Macklowe’s longtime lender, Deutsche Bank, sued to foreclose on loans for the hotel site and for nearby properties. Mr. Macklowe bought unused development rights, known as air rights, to eight townhouses on 57th Street to be able to add height to the building. He also sought to buy the townhouses themselves to give Nordstrom frontage on 57th Street opposite the Four Seasons Hotel but was only partly successful.

Mr. Macklowe paid a record average price of $520 a square foot for the air rights, according to a case study by two recent graduate students at Columbia, Travis B. Olsen and Evan Woolley.

If the Macklowes’ construction plans were complex, the financing was even more convoluted. Deutsche Bank sliced the $559 million Drake loan into 21 separate pieces, each with a different level of risk. The bank kept about $12 million of the loan and sold the rest to eight investment groups, earning tens of millions of dollars in fees.

Citing a lawsuit, the Macklowes declined to comment publicly on the Drake. But in court documents, they accused the bank of lying to them and betraying their trust “by making false promises it never intended to keep.”

Sounding like a jilted lover, they said the bank “strung Macklowe Properties along until Deutsche Bank got what it wanted, then refused to honor its commitments — benefiting handsomely from its willfully dishonest, deceptive, bad faith and fraudulent conduct at Macklowe Properties’ expense.”

If the bank succeeds in foreclosing, the Macklowes’ investment “will almost certainly be a total loss,” they said. Deutsche Bank did not respond to requests for comment.

Despite the foreclosure suit, the Macklowes hold some cards, brokers say. In April 2007, they agreed to pay $47.5 million for a townhouse at 46 East 57th Street, where the luxury jeweler Buccellati is a tenant. The sale has not closed. If it does, it is possible that the Macklowes may successfully argue that this building — and others — are not part of the loan collateral, thus ensuring a role for themselves, according to real estate executives familiar with the Drake site.

In addition to leaving a big hole on Park Avenue, the stymied development has also had repercussions for a fancy shopping strip around the corner from the site that was intended to be included in the Macklowe project.

The town houses are still standing, but several of the storefronts are vacant. At 44 East 57th Street, which was the home for 60 years of Dalva Brothers, a store that specialized in 18th-century furniture, a cracked window is patched with duct tape and cardboard boxes are piled up inside.

The Macklowes paid Dalva $2.2 million to move uptown. They also paid $19.2 million to buy the lease of the Swiss watchmaker Audemars Piguet at 40 East 57th Street and move the store to the north side of 57th Street.
But the Macklowes did not succeed in putting all the parts together.

Nordstrom, which had signed a letter of intent to build a store with 253,500 square feet, backed out after the Macklowes failed to acquire all the buildings needed to create the 57th Street entrance.

One holdout is Turnbull & Asser, a men’s clothing store where shirts start at $275. It had been in contract to collect $33 million for moving from 42 East 57th Street to another town house, according a document prepared by Cushman & Wakefield. But in May 2008, the owner of Turnbull & Asser, Ali al-Fayed, exercised his option to buy the building from the previous owner for $31.5 million. Now, said Louis Verde, the manager, “we’re not going anywhere.”

Another holdout is Jacob the Jeweler at 50 East 57th Street, which reportedly demanded $100 million to move. The company had no comment.

Last year, iStar Financial, a real estate investment trust in New York that holds the largest chunk of the senior debt on the Drake, tried to sell its $224 million note at a discount. When the bids came in well below the $160 million asking price, iStar took it off the market.

But Jeffrey W. Baker, an executive managing director at Savills, a mortgage brokerage, said prospects for such deals were improving. Several of his overseas clients have shown interest in acquiring the Drake loan with the intention of gaining control of the property, he said.

“While the complexities and risks of the deal have reduced the number of potential buyers significantly,” Mr. Baker said, “the growing consensus overseas is that market conditions are near bottom and that now is the time to acquire trophy U.S. assets at bargain prices.”

http://www.nytimes.com/2009/11/18/re...drake.html?dbk






http://www.nytimes.com/2009/11/18/re...drake.html?dbk
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Old November 19th, 2009, 02:21 PM   #2
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The photo in the article above depicts the site from the 56th Street side. Here it is from the Park Avenue side.

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Old November 19th, 2009, 02:24 PM   #3
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Here is an article from the New York Observer (before the market collapsed and the owners defaulted) about the project.

Macklowes Mull East 57th Street Monster Tower

Harry and Billy Macklowe are so busy. Two months ago, they more than doubled their New York portfolio with a $7 billion buy from Blackstone. And now here comes their next prize.

We already know that the Macklowes are planning something at the corner of Park Avenue and 56th Street, where they own the soon-to-be-demolished Drake Hotel. But now it appears that the big development site is expanding even more.

According to city records, the Macklowes have purchased 44 and 50 East 57th Street for $41 million and have issued a declaration of development rights for 42, 44, 48 and 50 East 57th Street—all tiny buildings that border the Drake. In the declarations, those properties are bundled with 434 Park Avenue—the Drake’s address—to make up an L.L.C. named 440 Park Avenue Owner Associates.

That means the Macklowes’ prospective monster at the corner of Park Avenue and 56th will curve like an L and expand all the way to 57th Street. So, in addition to being pretty tall—it will reportedly be 70 stories—the new development’s going to have a huge base. (Conspicuously absent from the declaration of development rights is 46 East 57th Street; one wonders if the Macklowes are having a tough time nabbing that building. They would not comment.)

In any event, Harry and Billy Macklowe are quickly securing cash. According to a document obtained by The Observer, the Macklowes have signed an air-rights mortgage-spreader agreement with Deutsche Bank for the 440 Park Avenue project for $543 million.

So they’ve got the money, but what are they going to build there?

It was originally conceived as a mixed-use project that would be mostly residential. The proposed building, known as 50 East 57th Street on the Macklowe Properties Web site, is listed under residential properties and is described as mixed-use.

But at a time when every developer is trading in kitchens for cubicles, the Macklowes are still mulling it over. Billy Macklowe, the heir-apparent to his father’s robust throne, told a group of reporters in February that no decision had been made.

Nevertheless, they’ve got plenty of reason to think office. Their new tower will border 450 Park Avenue, the 32-story tower that owner Taconic Properties is selling for a record-breaking asking price of $1,500 per square foot. And the prospective 440 Park (a.k.a. 50 East 57th) will have one of its three entrances on 56th Street, directly across from the Park Avenue Tower, one of the eight buildings that the Macklowes acquired from Blackstone.

http://www.observer.com/20070416/200...cialbreaks.asp
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Old November 20th, 2009, 06:40 PM   #4
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70 stories is pretty cool. Any news on the height?
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Old November 20th, 2009, 08:59 PM   #5
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No. The developer also bought some beautiful townhouses on 57th Street which are adjacent to the site. He planned to raze them which would suck.

While he likely will lose control of this site, which is in foreclosure, those townhouses are not part of what he will lose. Fortunately, he has not acquired all of the townhouses, and therefore, they're not of use to him.
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Old December 2nd, 2009, 01:22 AM   #6
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