Macklowe Metrics: Measuring Investment Sales in 2008

Welcome to the long view of the Manhattan investment-sales market.

It came into 2007 strongly, with the biggest building sale in American history, 666 Fifth Avenue for $1.8 billion, closing in January. It traveled past the midyear mark with expectations of an annual sales record: By Sept. 30, $42.5 billion worth of property had traded, besting the amount in all of 2006, according to brokerage Cushman & Wakefield (and that calculation only included deals of at least $10 million).

Along the way were tidbits of triumph. The median sales price for Manhattan apartment buildings below 96th Street cleared $500 a square foot for the first time ever in the first half of 2007, according to a report from investment-sales firm Massey Knakal prepared by appraiser Miller Cicero.

But as 2007 slid toward 2008, the perception behind the investment-sales reality shifted. Those scoring at home began tossing off a phrase—“credit crunch”—to describe the underpinnings of a looming crisis. Simply put, the crunch was going to make it much more difficult for building buyers to borrow money.

Perhaps the biggest poster boy for the change was Harry Macklowe. He had borrowed heavily to make one of 2007’s most stunning deals—the $7 billion purchase in February of seven Manhattan office buildings from Equity Office Properties (via the Blackstone Group). He owed his creditors money, and his creditors were more reticent by the end of 2007 to loan him more.

It could all come to a head this week, in fact, as Mr. Macklowe owes creditors Deutsche Bank and Fortress Investment Group some answers regarding $6.4 billion in loans by Feb. 8, according to The New York Times. Reports emerged last week that he had struck a tentative deal with Deutsche Bank, ceding control of the seven buildings in exchange for an extension on $5.8 billion worth of loans; and Mr. Macklowe has hired CB Richard Ellis to market his prized tower, the General Motors Building at 767 Fifth Avenue. Acquired in 2003, the building could sell for over $3 billion.

This would make it the most expensive single-building deal in history. One has the feeling, however, that should the GM Building sell, the deal will be an anomaly in 2008.

The Manhattan investment-sales market likely peaked in the first half of 2007, when over $32.7 billion in property traded, according to research firm Real Capital Analytics, which tracks closed deals of at least $5 million. The market slid in the last six months of 2007.

Will it keep sliding into 2008? The long view would suggest it has to; it’s already been to the top of the skyscraper.