Fall of a New York real estate dynasty

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NEW YORK (Fortune) -- It always seemed as if Harry Macklowe, the most famous of New York City's swashbuckling developers, was fated to lose it all one day. In good times, he borrowed heavily to expand his real estate empire. In bad times, Macklowe avoided catastrophe by sweet-talking his bankers - or battling them in court.

Now it appears Macklowe will be undone by an unexpected adversary: his son, William. On Tuesday, a spokesman for Macklowe Properties confirmed that William is expected to replace Harry as the privately-held company's chairman.

Ironically, Harry is on the verge of relinquishing his title after pulling off another of his Houdini-like escapes. He sold, for $3.9 billion, his company's treasured GM Building and three other Manhattan trophies on Saturday to an investor group led by Mort Zuckerman's Boston Properties. The Macklowes needed the money badly. Macklowe Properties defaulted several months ago on a $1.2 billion bridge loan that the developer personally guaranteed to buy seven Manhattan skyscrapers last year for $6.8 billion.

The default, however, created tensions between Harry and William, his right-hand man. In many ways, this was a typical father-son business dispute. Harry is a classic first generation entrepreneur who built Macklowe Properties from nothing, taking enormous risks with other people's money.

In the 1980s, Harry competed with Donald Trump to be the city's most prolific younger developer. Ultimately, he became best known for the wrong reason: the late-night demolition of a Times Square welfare hotel in 1986. It was an incident that tarnished the city's entire real estate industry. Harry's peers would have been only too happy if he had disappeared after the market soured in the late 80s and his bankers called his loans.

They were disappointed. Harry returned five buildings to his creditors. And when the New York City real estate market roared in the 90s, Harry bounced back. He ran afoul of his chief lender, Credit Suisse First Boston, after the Asian market collapsed in 1998, but landed on his feet again after a lengthy court battle.

Then he pulled off his most spectacular deal yet: the $1.4 billion acquisition of the GM Building in 2003. Harry could have stepped back gracefully then and let William take over the company. After all, that's what has happened at many of the city's biggest real estate families.

But Harry wasn't ready to let go. He leveraged himself to the hilt to buy the seven skyscrapers from the Blackstone Group (BX) in 2007. Then the credit markets fell apart, and Macklowe Properties couldn't refinance.

William was rankled. He and his dad couldn't be more different. Harry is an eccentric with an unusual sense of humor. Billy, as he prefers to be called, is more staid. He dresses impeccably. He speaks like a business consultant. He's not as aggressive as his father, but people in the real estate business tend to like him better.

Harry may have been willing to gamble everything on one last big deal. But William clearly had second thoughts. The Macklowe could have lost it all after the default. The son wasn't going to let his father get this family business into such a position again. That's why William will probably soon be chairman.

When William takes over, Macklowe Properties will be less exciting. There probably won't be as many defaults and lawsuits. It may even be a bit dull. But that's just want William wants. He's had enough excitement.