Highest Bidder Appears to Have Backed Out of Sale of the Flatiron Building

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At least for a few days, it appeared that the Flatiron Building had sold on Wednesday. With an offer of $190 million, Jacob Garlick, the auction’s highest bidder, won. Jeffrey Gural was taken aback by this as his family company was thought to be the most likely buyer for the remaining 25% of the building, which is currently owned by a four-owner consortium. The long-running impasse between Gural’s group and the final fifth proprietor, Nathan Silverstein, was resolved with the court-ordered sale.

According to auctioneer Matthew Mannion, there were 11 registered bidders when the auction started, but only “four or five actually placed any bids.” Once the bids reached about $160 million, Gural, a well-known New York real estate professional, and Garlick, a Virginia investor who owns a few buildings nearby but is largely unknown in the public, engaged in a two-person bid-’em-up race. When Garlick won, he cried out in joy and told NY1 that experiencing it had been a “lifelong dream of mine since I’m 14 years old. I’ve worked every day of my lift to be in this position. He then left without saying anything further in public or, it appears, to any of the other parties involved. “We are honored to be a steward of this historic building, and it will be our life’s mission to preserve its integrity forever,” he said before leaving. He failed to deliver the required 10% down payment on Friday, according to The Real Deal. He appears to have received an extension of one or two days after that, but he also missed that date. The building’s conflicting parties’ mediator, attorney Peter Axelrod, told the Times, “I suspect he didn’t have the money, or that he realized he overbid and decided not to proceed.”

According to Mannion, the auction was unique. For a property this scale, prospective buyers typically need to put up a few million dollars up front to prove their legitimacy. This time, buyers had to register ahead of time but weren’t needed to make a payment. It’s unclear whether, per the terms of sale, Garlick will be liable for a portion of his bid anyhow, to cover the costs of the auction and lawyering and generally causing a headache. Mannion says, sounding a little surprised, “I’ve done thousands of auctions and you can count the amount that didn’t require a down payment up front on one hand.”

Since he withdrew, Gural, the underbidder, is being given the property for $189.5 million. Given that his offer was increased by about $30 million in the dying seconds, he is almost certain to decline. It appears likely that the building will be put back up for auction and that, when it does, he will get a second, somewhat less costly bite of the apple.

Why enter an offer in an auction if you lack the funds? Garlick may have been covertly working for his soon-to-be-former partner Silverstein, who stands to gain from a higher final price, Gural hypothesized to the Times. That is known as shill bidding, and it is prohibited.) Alternatively, it’s possible that Garlick was simply swept up in the excitement of the situation. According to study on the subject, the possibility of losing to a rival can trigger a type of fight-or-flight response depending on a number of physical factors, such as blood oxygen levels. In essence, people simply keep moving forward against all logic when they become engrossed in the present. When it’s time to write the check, the smoke clears, and they stealthily return to their corners or their workplaces in Virginia.

From Curbed.

Roark Capital in Talks to Buy Subway

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Subway may be for sale.

From Bloomberg.com:

One of the prospective buyers vying for a sandwich company is Roark Capital Group. People with knowledge of the situation say Subway. According to the individuals, who requested anonymity because the situation is private, other private equity firms are also thinking about making a bid for the Milford, Connecticut-based business.

One of the individuals claimed that Subway is aiming for a valuation of more than $10 billion. According to another source, some potential buyers may place a $8 billion valuation on the company. No definitive choice has been made, and Roark may decide not to pursue a deal for Subway, the sources continued. A Roark Capital representative declined to respond. Requests for feedback from a Subway spokesperson were not answered. One of the biggest restaurant chains in the world, Subway, which has about 37,000 franchised locations across more than 100 nations, announced in February that it was considering a sale and was collaborating with JPMorgan Chase & Co.

The Atlanta-based Roark Capital, which is run by President Paul Ginsberg and Managing Partner Neal Aronson, has supported a number of food chains, including the parent companies of Arby’s, Dunkin’ Donuts, Carvel, and Carl’s Jr.

Iconic Flatiron Building Sells for $190 Million

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On Wednesday, the Flatiron Building brought in $190 million at a live auction.

In Lower Manhattan, the public auction took place in front of the state supreme court. A group of real estate firms controlled the Flatiron Building prior to the auction, but they couldn’t agree on refurbishment plans or potential tenants. They were compelled by a judge to put the building up for sale.


Tom Brady, a real estate broker with Douglas Elliman Real Estate, stated, “I didn’t want to miss this iconic event. The final offer, according to Brady, was reasonable but higher than he had anticipated. You’re talking about one of the most iconic and well-known structures in the world, he remarked. One of the most photographed man-made structures in the world, and I think the new owner deserves praise for it.

A group of real estate firms controlled the Flatiron Building prior to the auction, but they couldn’t agree on refurbishment plans or potential tenants. They were compelled by a judge to put the structure up for sale. The final company to occupy all 21 office floors of the building, MacMillian Publishers, left in 2019. In order to modernize the outdated building and lower its carbon footprint, the owners removed the ground-floor stores and spent $100 million on the renovation. Garlick’s toughest rival was Jeffrey Gural of GFP Real Estate, one of the building’s previous owners. He said, “I wish you hadn’t shown up,” in response when asked if he had any words for the winner.

However, the bids became excessive. Gural called for a break and, after speaking with a person, declared: “It’s not worth it.” If I’m being completely honest, I was somewhat astonished. I never imagined that the building would receive such a high bid. Although it’s a gorgeous structure, it requires $100 million in improvements. It’s essentially empty, he declared. The winning bid of $190 million was almost four times greater than the initial $50 million offer.

From NY1.

New York Governor to Increase Fines on Illegal Cannabis Stores…

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From CBS News:

New initiatives are being made to shut down the illicit marijuana businesses that have proliferated like weeds across the state, particularly in the five boroughs. Gov. Kathy Hochul is putting out a new enforcement strategy that would give state agencies increased enforcement authority as well as hefty fines. She wants tough new sanctions to crack down on illegal shops where lengthy rows of various marijuana strains are arranged in clear Plexigas boxes so connoisseurs can smell them before choosing. The governor issued a statement saying that it was intolerable that illicit dispensaries continued to operate.

Having illegal cannabis plants or goods could result in fines of $200,000, and selling without a license might result in daily fines of up to $10,000. In his Manhattan district, Senate Judiciary Chairman Brad Hoylman-Sigal has a large number of unlawful businesses.

“I’m supportive of any efforts to shut these illegal cannabis shops down. They are a nuisance, an eyesore,” according to Hoylman-Sigal. In order to pursue illicit dispensaries that are dodging state cannabis sales taxes, the measure would grant investigators with the state Department of Taxation and Finance the status of peace officers. “These cannabis shops don’t pay taxes. They’re operating way outside the law, but, most importantly, they are dangerous, dangerous to young people, to tourists, and to others who may think that just because a cannabis shop is open on a block — many in my district — that they’re selling a product that has been sanctioned,”, according to Hoylman-Sigal.

The latest suggestion excited Mayor Eric Adams, who has complained that city sanctions are too modest to be a deterrent.”Gov. Hochul clearly recognizes the need for action to strengthen the city’s ability to hold these illicit businesses accountable,” Press Secretary Fabien Levy said. “This enforcement is critical for the health and safety of our families and young people.” The budget is due at the end of the month, so officials hope it will be included.

A Message from Comptroller Brad Lander…Update on New York City’s Economics

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Brad Lander

Dear New Yorkers,

The economic numbers are mixed again this month. On the positive side, employment in New York City is now back at 99% of pre-pandemic levels, even with layoffs in technology. Restaurants and hotels, which took the hardest hit, are back at 95%.

But the bank failures at Silicon Valley Bank and Signature Bank pose serious new concerns (and remind us of the importance of strong public policy to manage risk, even when fast-talking lobbyists push to eliminate it). Inflation remains stubbornly high, and now the Fed’s ongoing efforts to combat it through interest rate increases could have implications for other mid-sized banks already under scrutiny by their depositors. And if banks become even more reluctant to make new loans, the likelihood of a recession grows.

Meanwhile, the ongoing arrival of families seeking asylum has pushed the shelter census to its highest levels ever, as the housing market remains tight. (Check out our issue brief, which details the contracts the City is entering into to provide shelter – and outlines the work needed to help people get out of shelter).

The City’s budget is mixed-news, too. Higher-than-expected revenues thus far will help to balance the budget for this fiscal year and next. But new labor contracts, declines on Wall Street, and the end of federal pandemic aid portend big gaps in the following years. (See our analysis of the Mayor’s Preliminary Budget and my testimony to the City Council).

For Women’s History Month, our spotlight focuses on the “care economy,” which has long been neglected and undercompensated, despite the centrality of care workers to all of our families, precisely because nurturing our kids and caring for our elders has been characterized as “women’s work.”

If we learned anything from the pandemic, it should drive us to better value care work. As the data shows, it has largely been public policy – raising the minimum wage, adding a small but meaningful boost for home care workers, and “pay parity” for childcare workers in the public and nonprofit sectors – that has achieved modest pay raises for home care and childcare workers in NYC, a workforce that remains largely low-income women of color.

Don’t let the mixed economic signals keep you from enjoying the first hints of spring. While you’re watching for the first blooms, we’ll keep watching the numbers.

Sincerely,


Brad Lander

Interest Rates to Rise Again…

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Federal Reserve Chair Jerome Powell said that “Financial conditions are tightening after SVB’s collapse and could slow the economy, Powell says The U.S. banking industry is robust, but the recent failure of a few regional banks could have unintended consequences that slow down the economy, according to Federal Reserve Chair Jerome Powell. Powell described the banking system in a press conference following the most recent Federal Open Markets Committee meeting as “sound and resilient” but said the central bank was monitoring a change in the availability of credit for consumers and businesses. related investing news “Financial conditions seem to have tightened, and probably by more than the traditional indexes say. The question for us though is how significant will that be, what will be the extent of it, and what will be the duration of it,” Powell said. “We’ll be looking to see how serious is this and does it look like it’s going to be sustained. And if it is, it could easily have a significant macroeconomic effect, and we would factor that into our policy decisions,” he added.

On Wednesday, the Fed increased its benchmark interest rate by a quarter of a percentage point, but according to its forecasts, there will only be one more increase this year. According to the head of the central bank, tighter financial conditions brought on by banks making more stringent lending decisions could have a similar effect as additional rate hikes from the Fed. Powell’s remarks follow significant pressure this month on regional banks. Due in large part to the rapid increase in interest rates devaluing the bank’s bond portfolio and causing significant paper losses, Silicon Valley Bank failed, becoming the second-largest failure in American history. While other banks have been able to handle the rate hikes, Powell said that SVB’s management “failed badly” in managing its interest rate risks. There have been significant deposit outflows at other banks, including First Republic and PacWest. A new Bank Term Funding Program was established by the Fed to aid banks in accessing capital, but since the facility’s launch on March 12 regional banks’ stock prices have fallen in choppy trading.

Although Powell refrained from saying explicitly that all deposits are now guaranteed, he said that deposit flows have stabilized over the past week and that Americans should feel confident about the security of their money. “What I’m saying is you’ve seen that we have the tools to protect depositors when there is a threat of serious harm to the economy or to the financial system, and we’re prepared to use those tools. I think depositors should assume that their deposits are safe,” he said. The collapse of Silicon Valley Bank has led to more scrutiny on the Federal Reserve’s supervisory role over banks, especially from Sen. Elizabeth Warren (D-MA). The Fed is conducting an internal review of potential regulatory issues around SVB, led by Vice Chair for Supervision Michael Barr, and Powell said he expects investigations from outside the central bank as well.”

From CNBC

Flatiron Building up for Auction on March 22, 2023

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The Flatiron Building was originally known as the Fuller Building

A landmark Manhattan building’s current owners are at odds, and the property will shortly be put up for auction to the highest bidder.

On March 22, the 121-year-old Flatiron Building, which is now vacant, will be put up for auction in a partition sale as a result of a decision in the ongoing legal dispute between its many landowners.  Following a 2021 lawsuit by Sorgente Group, Jeffrey Gural’s GFP Real Estate, and ABS Real Estate Partners, who collectively own 75% of the property, a New York state judge in January issued an order permitting the auction to proceed, the Real Deal was the first to announce. 

The steel-framed 175 Fifth Avenue skyscraper, which was finished in 1902 and serves as the namesake for the area, was the subject of a lawsuit by the co-owners following a deadlock with Nathan Silverstein, who owns 25% of the structure. 

The parties were stuck in a very expensive standoff over the future of a very expensive piece of real estate because of the shared ownership of the building, which gives every owner veto power on every significant building decision. 

After MacMillan Publishers, who at the time had all 21 floors of the triangular building, declared in 2017 that it would be leaving within two years, the situation became intolerable. 

After that, Silverstein made a number of “preposterous” suggestions, according to Gural, including not upgrading the property between the time MacMillan left and when a new tenant moved in. This was despite the fact that upgrades were legally required to re-rent the building and for fire safety, Gural claimed in an affidavit.

The Real Deal said that Gural wrote that Silverstein had the idea to divide the property into separate ones despite the building being a landmark. This was impossible because of the property’s historic status.

Gural stated in the statement that it “boggles the mind” to suggest that we could nonetheless agree on a plan to physically divide this structure into five smaller, independent properties, none of which would be marketable — and then agree on a plan as to how that work would be financed. We have been attempting to resolve these issues with Mr. Silverstein for years, but he has put off, fought, and ultimately refused to accept the plaintiffs’ suggested business plan.

Meanwhile, Silverstein alleges that Gural attempted to rent the space to Knotel, which Newmark’s Barry Gossin had a large stake in, for a “exceptionally low cost per square foot” and an exceptionally long term after Newmark neglected to advertise the property when MacMillan announced it was departing. 

According to Silverstein’s affidavit, the “proposed rental agreement” would have committed the property to an unproductive lease for an extended length of time. 

According to a prior filing made by Gural, the Sorgente-GFP-ABS consortium would probably make a bid during the auction later this month, according to the Real Deal. 

From the NY Post.

Number of Foreign Investors Returning to the US Market

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From the Wall Street Journal:

Insiders in the real estate industry claim they have observed an increase in the number of foreign buyers returning to the US market. International buyers have been slowly returning after a period of relative absence during the pandemic for more than a year, but insiders reported that in the last three months, their levels of interest had nearly reached pre-pandemic levels. That is due to a combination of loosening Covid regulations around the world, particularly in previously rigorous nations like China, as well as a number of political and economic developments, such the Russia-Ukraine war and the tumultuous Brazilian election.

Foreign purchasers are a significant shift in domestic markets that have been cooling as a result of rising interest rates and recessionary worries. The decline comes after a strong real estate boom, driven by Covid, that drove most U.S. markets higher in 2021 and early 2022.

“It was the domestic buyer that led the recovery out of Covid,” said John Gomes of Douglas Elliman, who said foreign buyers currently account for about 40% of his team’s business, which has offices in New York, Miami and Los Angeles. That is up from just over 30% before the pandemic. “It is the foreign buyer that is leading the recovery this time around. It’s very, very apparent.”

“It was a real unknown when and if, after the pandemic, the Chinese buyer would come back to New York,” he said.

By contrast, Corcoran Sunshine has “clearly seen a pullback” over the past 10 months in activity by local and domestic buyers, he said.As listing websites like Redfin don’t maintain track of a buyer’s country of origin, it is challenging to get information on the volume of transactions by foreign buyers. The assertions of a resurgence of foreign buyers are, nevertheless, supported by some facts.

Corcoran Sunshine, a new development marketing company that sells condos all around New York City, reported a 25% rise in foreign visits to its portfolio buildings in January 2023 compared to January 2022, with a significant increase in visitors from China and the Middle East. According to Ryan Schleis, senior vice president of research and analytics at Corcoran, the company’s portfolio saw more than triple the number of foreign visitors and more than twice the number of foreign buyers during the same period in 2022 compared to the pandemic’s slowest sales period, April through December 2020.

He ascribed the increase in part to China abandoning its zero-Covid regulations, enabling Chinese citizens to finally go to the United States with more freedom.  “It was a real unknown when and if, after the pandemic, the Chinese buyer would come back to New York,” he said.

In contrast, Corcoran Sunshine has “obviously experienced a downturn” in activity from local and domestic purchasers over the previous 10 months, he claimed.

Some developers in South Florida claim to have recently noticed an uptick in demand from Brazilian purchasers. The developers of Nexo Residences, a 254-unit condo development in North Miami Beach, reported that since October 2022, amid political unrest following the nation’s presidential elections, Brazilian buyers’ interest has increased by 30%. In order to lead the political opposition to President Luiz Inácio Lula da Silva and defend himself from claims that he instigated attacks by protestors on government buildings in January, the former president of Brazil, Jair Bolsonaro, has stated that he intends to return to Brazil this month.