REFILE-Boston Properties close to GM Building deal

(Refiles with new headline)

By Ilaina Jonas

NEW YORK, June 4 (Reuters) - Boston Properties Inc (BXP.N), which is leading a purchase of the GM Building, may end up with an economic interest of more than half of the New York skyscraper next week when the deal is set to close, the company's president said on Wednesday.

A Boston Properties-led group agreed last month to buy arguably the best office address in Manhattan, and three other buildings, from Macklowe Properties for $3.45 billion, including the assumption of $2.47 billion of debt.

Macklowe had to sell them to repay debt he owed on seven other buildings he bought in 2007. His struggles became a symbol of the credit squeeze when a year later he was unable to refinance the short-term debt on the purchase.

In January, Macklowe began marketing the General Motors Building in hopes of attracting investment in his company so he could at least maintain an interest in the Manhattan icon.

"From our perspective, the Macklowe organization went about looking for a recapitalization of its company," Boston Properties President Douglas Linde told the annual National Association of Real Estate Investment Trusts Forum in New York. "Our perspective is that we were not really interested in being entity investors."

Boston Properties then signaled that it was ready to buy if Macklowe wanted to sell the GM Building or other buildings.

"We were pretty tenacious about what our views were," Linde said. "I want to give all the credit to Mort Zuckerman, who is our chairman, who continued to persevere and persevere and persevere though this whole process."

Despite not having a deal, and Macklowe considering other offers, Boston Properties forged ahead with the groundwork.

"It literally was until four o'clock in the morning on Saturday, Memorial Day weekend, we really didn't have any sense whether they were going in our direction or they we going to ultimately do something on an entity level."

But on May 24, Boston Properties announced it had a deal for the buildings, which also include 540 Madison Avenue, 125 West 55th Street and Two Grand Central Tower.

Linde said Boston Properties expects to end up with an economic interest -- its share of cash flow from the properties -- of up to 51 percent, though it may be as low as 25 percent in Two Grand Central Tower, for example.

Located at 767 Fifth Avenue, the GM Building is in a district where market rents range of $160 to $225 per square foot. The GM Building's two biggest tenants, law firm Weil, Gotshal & Manges and cosmetics and perfume company Estee Lauder Companies Inc (EL.N), pay rent well below that.

The average base rent is $82 per square foot on their combined space of 779,000 square feet, or 40 percent of the building, and the leases do not expire for more than a decade.

Linde said Boston Properties may try to buy them out early.

Toy store FAO Schwarz also may not be long for the location. It pays $70.63 per square foot for more than half the 66,465 square feet of retail space it rents, when market rates are well over $1,000 per square foot. Its lease ends in 2012.

"FAO Schwarz ultimately will probably not be the most economically viable potential tenant we have for the space over time," Linde said. (Editing by Braden Reddall)