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Credit Crunch is Making its Presence Known Across the Country and Across All Investor Classes
In New York City, real estate titan Harry Macklowe is facing the same tough road that many investors, small and large, are facing because of banks’ inability or unwillingness to lend money in the current marketplace. His situation demonstrates that the credit crunch is affecting the real estate markets from coast to coast and across all types of markets: residential, industrial, and in Mr. Macklowe’s case, even premium top dollar commercial real estate. Mr. Macklowe owns billions of dollars worth of real estate in New York City, especially Manhattan. This week, Mr. Macklowe set up a tentative agreement with his lender to turn over effective control of seven Manhattan office buildings he acquired less then a year ago for $7 billion, according to the Wall Street Journal.
When the buildings were purchased, Macklowe obtained short term financing with the idea that, after a year, he would be able to refinance at lower rates. This is a common real estate strategy, especially when the market is shooting up. Now, with the market down and no banks willing to lend billions more with such a soft market, Mr. Macklowe is between a rock and a hard place, like many other investors. In his case, though, he has a personal guarantee with his banks for $1 billion as well as interest in twelve other premium office buildings in New York City. Time will tell if Macklowe can persevere though this downturn. He has before. In the 1990’s down cycle, Macklowe lost several properties due to the massive collapse of real estate prices at that time.