Macklowe may recap $3B GM building.

Macklowe Properties has bought out its preferred equity partner for the General Motors Building in what sources familiar with the deal say is the opening step in a recapitalization of the property.

The equity partner, Atlanta based Jamestown which offers closed-end real estate funds to German investors, earned what is reported to be a roughly 9% annual return for its investment as well as undisclosed termination fees. The firm purchased a $300 million interest in the 1.9 million s/f office building last year when Macklowe Properties restructured the building's financing.

The current refinancing comes after a recent valuation put the building's worth at $3 billion, more than double what Macklowe paid for the property in 2003 and far eclipsing the city's two most expensive building sales, the $1.72 billion purchase of 200 Park Avenue in 2005 and the $1.5 billion paid for 1211 Avenue of the

Americas earlier this year. The building's value will allow Macklowe to take out a much larger first loan, typically the cheapest type of financing among debt tranches. With the proceeds of such a loan, investment sales experts say Macklowe will likely pay off the building's existing debt, become the sole equity position, and reap a significant influx of cash that sources say Macklowe is eager to reinvest in the property to maintain its place as a building known for its amenities and technology.

Deutsche Bank, is said to be among a shortlist of major financial institutions competing for the first loan. The bank provided Macklowe Properties with a $1.1 billion floating rate loan for its purchase of the property, debt that the bank converted to a 5% fixed rate as part of the building's recapitalization last year. At the time, Macklowe also paid off a $275 million mezzanine loan provided by Vornado, who was a bidder on the property in 2003.

Valued at roughly $1.7 billion for last year's recapitalization, the current markedly higher appraisal was partly based on growth projections for the building's cash flow. Although the GM Building is known for having some of the highest rental rates in the city--deals there routinely go for over $100 per s/f--a source revealed that there are a number of tenants, whose leases are soon up for renewal, paying rents far below market value.

An article in Real Estate Alert, which first reported he building's increased valuation and recapitalization last week, stated that Weil Gotshal, the building's largest tenant with 540,000 s/f, pays $48 per s/f. General Motors, which has 100,000 s/f, pays $68 per s/f according to the article.

Eastdil Secured's Doug Harmon represented Jamestown in the buyout. Harmon has handled a number of deals for both Macklowe and the Jamestown, selling the residential rental building, River Terrace, for Macklowe in recent months, and handling the $1.5 billion sale of Jamestown's 1211 Avenue of the Americas.

Wayne Maggin, a broker at Eastdil Secured, handled the GM Building's sale in 2003, a transaction that has been the focus of a pair of lawsuits in recent months that allege that the bidding, which Macklowe won with a $1.4 billion offer, was rigged. Eastdil Secured, Macklowe Properties, and the other defendants in the lawsuits have dismissed the lawsuit as baseless.