Arab Fund May Snatch GM Building

A Middle Eastern sovereign wealth fund is hovering over the leading bid for the General Motors Building, waiting for a chance to snatch up the iconic tower.

Deutsche Bank and Harry Macklowe are plugging away at a deal to sell the building at 767 Fifth Ave. for about $2.8 billion — far less than the $3.5 billion originally sought — to a consortium of buyers reportedly led by billionaire press and real estate mogul Mort Zuckerman.

The deal is a so-called all-cash offer because it is not contingent on financing, but the parties involved still need financing from banks to close, and in this difficult environment, there is a chance the financing will not come through.

Meanwhile, the Arab sovereign wealth fund has offered to cut a check for less than $2.8 billion, but with the assurance the deal would close because it would use no leverage, according to sources familiar with the offer.

Under the deal in the works with Mr. Zuckerman and the consortium, which includes at least one sovereign wealth fund, the Macklowes would have management of the properties and be paid an incentive fee should the income generated by the properties reach a certain threshold.

The deal has not yet been finalized because of its complexities and the number of investors involved, according to sources familiar with the process.

"A $2.5 billion value is a good deal because the cash flow will carry all property expenses and debt service," the chairman of the New York office of the law firm Greenberg Traurig, Robert Ivanhoe, said. An offer of $2.9 billion, on the other hand, "is fair from purely a valuation standpoint but will have negative carry in the early years," he said, meaning the cost of the debt and expenses on the building will exceed the income generated.

The three largest Middle Eastern sovereign wealth funds — defined by the Department of the Treasury as "government investment vehicles funded by foreign exchange assets, which manage those assets separately from official reserves" — include Abu Dhabi, with $875 billion, Saudi Arabia, with $300 billion, and Kuwait, with $250 billion, according to data from Morgan Stanley.

Mr. Macklowe and his son William are in search of funds to meet about $6.4 billion in debt payments that resulted from their $7 billion acquisition of seven Manhattan office towers last year from Equity Office Properties Trust. The Macklowes borrowed $5.8 billion from Deutsche Bank and $1.2 billion from Fortress Investment Group to fund the acquisitions. The father-son team will use the proceeds from the sale of the GM Building, which they used as collateral for the Fortress loan, to help pay down these debts.