When Harry Macklowe set out to develop 432 Park Avenue, he hoped to pocket about $400 million in profits from the sale of top-shelf condominiums. It turns out, he testified Thursday, that his expectations were off – about $350 million off.
“My share was down to $48 million,” Macklowe said during testimony in his high-stakes divorce trial. That gulf was a result of several factors, he said, one of which was a capital infusion in 2012 that diluted his potential stake. A luxury market slowdown also took its toll, he said.
“The sales, at first, started off very robustly and then they slowed down,” Macklowe said. Ultimately, construction “took longer and was more costly” than anticipated, eating into the profits, he said. The total projected sellout of the building, according to filings with the New York Attorney General is $3.1 billion. According to CityRealty, closed sales at the building to date total over $1.95 billion.
Macklowe said he bought the site, formerly home to the Drake Hotel, in 2006, and brought in Los Angeles-based CIM Group in 2009. CIM invested $350 million that year, but in 2012, the investment firm hired Citibank to raise additional equity. The bank ultimately syndicated $400 million from high-net-worth investors. The developers sewed up the final piece of financing, a $400 million mortgage from the Children’s Investment Fund, in October 2012.
Macklowe has tried to downplay his financial strength during the trial, in which he is battling his wife Linda Macklowe over a joint fortune said to be in the range of $2 billion. He’s listed his personal net worth as negative $400 million on account of deferred capital-gains taxes. Linda, too, has followed, a similar strategy, as The Real Deal reported in its November cover story.
Documents submitted in court on Thursday show Macklowe had $49.7 million in his savings account in June 2016, when Linda filed for divorce. However, the account was pledged as collateral for various loans totaling more than $100 million at the time. Those loans included $10 million from Israel Discount Bank to acquire the development site at 200 East 59th Street. In 2011, Harry borrowed $10.5 million from Linda — at a 15 percent interest rate — to close on his acquisition of 737 Park Avenue.
“Was her role different from the limited partners who were in on this deal?” asked Judge Laura Drager. Yes, Macklowe answered. “In what way?” she prodded.
“A partner invests money. She lent me money,” Macklowe said. “She lent me my money.”
After detailing his loans, Macklowe testified about several assets — including an apartment at The Plaza that he and Linda bought for $60 million in 2007.
The developer said they poured another $30 million into renovations, and he stepped down from the stand to present a series of poster-sized photos of the apartment. There was the dining room that could seat 32, the art collection, a “rarely used” kitchen and the sprawling master bedroom. “Our first apartment could fit into the bedroom twice,” he said. “We paid around $175 a month in rent.”
As for dividing the marital assets, Bronstein asked Macklowe if there was anything — including commercial real estate — that he wished to retain.
“Oh Jesus, this is absurd,” Linda said. But Macklowe said there wasn’t, not even the commercial real estate.
“I’ve been happy from day one to divide things equally,” he said. “That’s it.”
Macklowe moved out of The Plaza apartment in May 2016. “Do you believe you’re incompatible?” asked his lead attorney, Peter Bronstein, prompting Linda’s lawyer, John Teitler, to object. “I’ve got to prove a divorce here,” Bronstein said.
“I thought that was a foregone conclusion,” said Drager. “Are we having second thoughts?”
Neither side was.
Ashley McHugh contributed reporting.