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Developer Harry Macklowe’s financial woes could negatively impact COMM 2007-FL14, a USD 2.5bn commercial real estate deal, a buyside source and a source familiar with the transaction told Debtwire.
Macklowe, a prominent New York real estate mogul, has made headlines of late in his struggle to refinance USD 6.4bn in debt due in February. The debt was used to finance the purchase of seven midtown Manhattan office properties in 2007, before the credit markets dried up. Macklowe is reportedly looking to sell the trophy GM building in order to raise cash.
COMM 2007-FL14, which was underwritten by Deutsche Bank last year, has exposure to approximately USD 1.13bn of the debt, a loan that makes up 52.3% of the deal’s original pool balance. The one-year, floating-rate loan matures in February and has no extension options.
“We will probably not know if there is a default” until either the February remittance report comes out on 15 February or “unless there is some sort of announcement made regarding him [Macklowe] lining up financing,” said a source familiar with the transaction.
A spokesperson for Macklowe Properties said the company would not comment ”on the specifics of any of their financial transactions” and that an announcement would be made ”when and if we finalize something” relating to debt payment.
If Macklowe fails to pay, the loan will go to the special servicer who would declare a default and start the loss mitigation process. It is unlikely, however, that the default would lead to an actual foreclosure, because Macklowe’s properties “are so sought after,” the source familiar with the transaction said.
Meanwhile, Citigroup speculated in research on 18 January that Macklowe will negotiate his way out of default. “The borrower himself has a very tough reputation…and will likely negotiate this refinancing down to the final hour,” Citigroup said in the report. He could even “default as a negotiation tactic,” the report noted.
According to one buyside source, even if there is a default, there probably won’t be a loss of principal, though the value of the bond would fall, due to the “uncertainty about the timing of the repayment of the principal,” the source said. ”Investors like to know when they’re going to get their money back.”
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