Another CRE debacle

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The Commercial Real Estate (CRE) bust is coming to an office building near you. The latest story? The GM building in NY was flogged off with some other properties at the peak of the bubble for a cool $3.6 to $3.9 billion. Now, the properties have sold for $200 million below the asking price of $2.8 billion. Can you say negative equity? Not a happy sum to be writing a check for at closing. The blog, Calculated Risk says:

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This is another followup to CRE: Bought at the top?. Basically NY developer Harry Macklowe bought seven New York office buildings at the price peak, with little down, and a personal guarantee for a portion of the loan. He was unable to refinance the short term debt, and he is now in default. Macklowe is trying to sell his other holdings – including the GM building – to satisfy the personal debt.

From the WSJ: Goldman, Boston Properties, Others In Talks to Buy Macklowe’s GM Building

An investment group that includes Boston Properties Inc., Goldman Sachs Group Inc. and two Middle Eastern investors are in negotiations to buy the General Motors building along with up to three other properties from New York developer Harry Macklowe for $3.6 billion to $3.9 billion …

… The deal would value the GM building at about $2.8 billion, $200 million less than what had been his minimum price.

The deal is designed to rescue Mr. Macklowe from financial ruin, but it isn’t clear that this transaction would resolve his debts.

The CRE market is a disaster that has not been fully accounted for by our trusty financial institutions. I see more write-offs down the line.

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