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Funds News

UPDATE 2-Macklowe seen in default,no foreclosure yet-source

(Adds background on Macklowe, commercial real estate market)

NEW YORK, Feb 8 (Reuters) - Talks between New York real estate titan Harry Macklowe and lenders on Manhattan office buildings he bought last year broke for the day without resolution, a person briefed on the matter said on Friday.

The lack of agreement with the lenders technically could put Macklowe in default, the source said, adding that none of the lenders are currently pushing for foreclosure on the buildings.

The talks could resume next week, the source said.

A spokesman for Macklowe declined to comment on the matter.

Macklowe reportedly borrowed $5.8 billion in February 2007 from Deutsche Bank AG DBKGn.DE to buy seven Manhattan office buildings formerly owned by Equity Office Properties.

Last week, Macklowe, reportedly reached a tentative deal with Deutsche Bank to turn over the buildings, which he bought for $7 billion. Deutsche Bank declined to comment on the matter.

Macklowe reportedly owes Deutsche Bank $5.8 billion in acquisition financing that is known as “non-recourse” -- which would allow Deutsche to take control of the buildings, but do not give it a claim to the rest of Macklowe’s empire.

He reportedly put $50 million of his own money into the purchase and still needs to come up with $1.2 billion to repay a bridge equity loan from Fortress Investment Group LLC FIG.N that he secured by interests in some of his own holdings.

Macklowe bought the properties in conjunction with Blackstone Group LP's BX.N acquisition of Equity Office last year.

His struggles with the loans underscore the rapid and severe credit crisis that has wiped out easy and generous debt financing and made lending more difficult and expensive.

Since Macklowe bought the buildings, the commercial mortgage-backed securities (CMBS) market -- a major source of capital for real estate deals -- has all but dried up.

Banks have been beset by problems stemming from the residential subprime lending market. Risk across all lending categories has been repriced, making loans more expensive and leaving Macklowe stranded.

Bets against commercial real estate also surged on Friday as analysts ramped up warnings of increased downgrades and losses, especially if the U.S. economy falls into recession.

Yield spreads on some indexes tied to bonds backed by office buildings, hotels and retail stores soared to record highs. Most indexes rated “AA” and lower ballooned by more than 200 basis points to record levels on the week, JPMorgan data shows.

Reporting by Jonathan Keehner; additional reporting by Ilaina Jonas and Al Yoon. Editing by Andre Grenon, Leslie Gevirtz

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