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Just two years ago when the world was still somewhat bullish on commercial real estate, Macklowe Properties purchased WorldWide Plaza for $1.74 billion and held a $1.014 billion mortgage on the Manhattan office building. Now, commercial real estate around the country is struggling as valuations fall and tenants get increasingly hard to come by. The journey of WorldWide Plaza has become a microcosm of the commercial real estate industry today. After Macklowe defaulted on the mortgage last year, media reports put the property in the hands of the lender Deutsche Bank AG (NYSE:DB), which sold it for the bargain price of $605 million to an investment group led by George Comfort & Sons and RCG Longview. The really scary part is that the deal is likely representative of the type of commercial real estate transactions that will increasingly transpire over the next couple of years as interest-only loans mature and borrowers struggle to find new mortgages. Meanwhile, owners are trapped by excess office inventory, forcing them to continue to lower rents to attract or maintain tenants. Already, U.S. office vacancies have increased to 15.9% compared to 13.2%, according to New York-based research firm Reis Inc. With unemployment rates likely taking longer to fall, demand for office space won't be increasing anytime soon, putting even more pressure on owners of commercial properties. As for Deutche Bank, the sale of the building ends a financial nightmare of epic proportions as it sells the last of seven buildings it took from Harry Macklowe after he defaulted on a total of $7 billion in mortgages on those buildings. The new deal calls for Deutsche to provide financing of $470 million while the buyers will put up $130 million, according to Bloomberg. - Gerald Magpily
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Wow, $7b in loans to 1 client; seems Deutsche Bank forgot (or disregarded) the fundamental principle of diversification.