Macklowe says he’s seen none of projected $110M earnout at 432 Park

By Adam Pincus

Developer Harry Macklowe alleges CIM Group has paid none of the $110 million Macklowe was allegedly projected to earn from profits at the Billionaires’ Row condominium tower, 432 Park Avenue.

Macklowe claims a 2011 agreement between him and CIM Group outlined that he would earn a 20 percent return once CIM Group had earned a 15 percent return on its investment.

The details were disclosed in court documents that were attached to a complaint CIM Group filed June 15 in New York State Supreme Court. LINK

CIM Group filed its complaint to block an arbitration Macklowe is seeking, in which Macklowe alleges CIM Group has not paid him any money pursuant to the 2011 agreement, known as the Amended and Restated Contingent Purchase Price Agreement. Macklowe claims CIM Group projected Macklowe’s participation value was $110 million.

According to Macklowe’s petition for arbitration,“Macklowe leveraged his decades of construction experience, management skills, design eye, New York social capital, and marketing genius to ensure 432 Park Avenue’s success… Based on projections provided by CIM, Macklowe’s participation was valued at $110 million.”

Macklowe’s petition alleges that at 432 Park Avenue, “CIM has turned approximately $900 million in profit. The development is a success, and yet in over 13 years, Macklowe has not received any participation under the Amended CPPA.”

CIM, for its part, alleges Macklowe has no standing to bring the case to arbitration and seeks to permanently halt the process.

Macklowe was the original developer of the project, assembling the multi-property site centered on the Drake Hotel, which he purchased in 2006 for $418 million.

By 2007, the project had fallen into financial trouble and in January 2010, development firm CIM Group rescued Macklowe from a foreclosure by buying the development site from creditors for about $305 million. Macklowe’s investment of more than $220 million was wiped out, as were other creditor stakes.

According to the CIM complaint, “CIM…agreed to bail out Macklowe and pay off Macklowe’s debts related to the development at 432 Park Avenue. In exchange, [CIM] received Macklowe’s interest in the project and agreed to make contingent purchase price distributions to [Macklowe affiliates] under certain specified circumstances.”

As part of the rescue deal, CIM took full control of the project but according to Macklowe, the purchase and sale agreement gave Macklowe a form of hope note, in which he would be paid a return after CIM earned more than 15 percent, according to court filings.

According to the arbitration filing, “Macklowe is entitled to the first 20% of proceeds once CIM Fund has recouped on its own investment and earned a 15% return… Upon CIM Fund earning a 20% return, Macklowe’s compensation jumps to 50% of total proceeds.”
But, Macklowe contends, he has received none of the compensation from that agreement.

CIM Group alleges Macklowe has in fact made nearly $40 million on the project.

According to CIM, “Macklowe and his affiliated entities have been paid over $39.5 million in reimbursements, sales commissions, and development fees in connection with the 432 Park Avenue project since 2010 pursuant to agreements to provide developer services separate from the Amended CPPA.”

In addition, CIM claims it gave Macklowe a $15 million advance in 2014.

In CIM Group’s complaint, the firm alleges Harry Macklowe defaulted on $46.4 million in debt used to buy three apartment units in the tower last year.

Macklowe bought two apartments that make up the 78th floor of 432 Park Avenue, 78A and 78B, as well as low-priced unit on the 28th floor, in May 2022 for more than $47.2 million. At the same time, he borrowed $46.4 million in mostly mezzanine loans from CIM Group to finance the purchases.

Those loans allegedly matured on March 31, 2023 and were not repaid, and now CIM Group says they are in default.

The 78th floor units were the same units Macklowe intended to purchase for himself and his then-wife Linda Macklowe, but the sales never closed.

The units are 78A, purchased for $14.7 million and financed with a $14.3 million mezzanine loan and a$155,000 senior loan; 78B for $31.99 million and financed with a $31.6 million mezzanine loan and a $345,000 senior loan; and the unit 28H for $514,868.

Macklowe is seeking to connect the debt on the three condos to the 2011 agreement that has an arbitration clause, claiming in a February 22, 2023, letter that they are “inextricably linked.” The condo loans have no arbitration clauses according to the CIM complaint.

CIM Group is seeking a court order permanently blocking the arbitration.

A few weeks later, CIM sent a letter on March 9, rejecting the notion that the two deals were linked in any way. In addition, “As a courtesy, [CIM] also provided Macklowe… with the names of several banks that could possibly provide refinancing…”

On April 3, CIM notified Macklowe that the $46.4 million in debt had matured on March 31, 2023, and then on May 10, 2023, CIM sent a notice of default.

In an attempt to resolve the the loan maturity default, Macklowe on April 7 submitted a demand for arbitration with the American Arbitration Association.

The deadline for an answer and counterclaims in the arbitration was extended to June 15, 2023, the day CIM Group filed its action to block the arbitration.

Direct link to the property’s ACRIS page.