UPDATE 1-Boston Properties says it will buy GM Building

(Adds comment from real estate executive)

CHICAGO, May 24 (Reuters) - Boston Properties Inc (BXP.N) said on Saturday it reached a deal to buy the General Motors Building in Manhattan, along with three other buildings, from New York developer Harry Macklowe for about $3.95 billion.

Boston Properties, which owns and operates office buildings, said it would acquire the properties through joint ventures with unidentified partners. The company said it would pay about $1.47 billion in cash and $10 million of common units of limited partnership interest. The company also agreed to take on about $2.47 billion in debt.

The company said in a statement it would also buy three other New York properties: 540 Madison Avenue, 125 West 55th Street and Two Grand Central Tower.

The GM Building is seen as one of the most successful real estate redevelopments and arguably the most coveted office building in Manhattan.

Boston Properties did not immediately disclose the amount of cash it would pay for the GM Building, but said the principal debt it would assume for the property amounted to $1.9 billion of secured and mezzanine loans having a weighted average interest of 5.97 percent per year.

Macklowe Properties bought the building, previously half-owned by Donald Trump, in 2003 for a then-record $1.4 billion. Macklowe turned the 50-story structure into a hot property, luring hedge funds and private equity firms as tenants and commanding some of the highest rents -- more than $150 per square foot -- in the United States.

Macklowe spent about $7 billion last year for seven Manhattan buildings previously owned by Equity Office Properties Trust. He has since struggled to refinance those loans and has reached extension agreements with his chief lenders, Fortress Investment Group LLC (FIG.N) and Deutsche Bank AG (DBKGn.DE).

Proceeds from the GM Building will be used to repay Macklowe's lenders.

Last year, Deutsche Bank headed a group that provided $5.8 billion in short-term loans for the buildings. Those loans and a $1.2 billion equity loan from Fortress Investment were to be replaced by longer-term loans. But the tightening credit markets wiped out Macklowe's ability to secure new funding. In February, he defaulted on the loans.

Macklowe's troubles became emblematic of those of large borrowers who relied on temporary financing to foot the bill for huge acquisitions, only to have the credit crunch crush plans. Borrowing terms have become less generous and more expensive.

The GM Building sale does not reflect the condition of the New York office market, said Barry Gosin, chief executive of real estate services firm Newmark Knight Frank.

"You can't really tell what the market is like because it's such an iconic building," Gosin said. "It's a classic asset on Central Park. Tenants are willing to pay a premium to be in the building."

Excluding the GM Building, the other three buildings -- not part of Macklowe's 2007 $7 billion deal with Equity Office -- traded for $600 to $700 a square foot, Gosin said. That is far less than the $800 to $1,000 range they would have commanded before the credit crises.

"This is an indication that prices have adjusted," Gosin said. "The clear indication will be when the rest of the EOP (Equity Office) buildings trade," he said, referring to the seven buildings that Deutsche Bank and other original lenders of the deal are in the process of selling.

The company said the purchase of the GM Building was expected to close in June. (Reporting by Ilaina Jonas and Kyle Peterson; Editing by Peter Cooney)