Winning Bidder for Flatiron Building Fails to Make Deposit

The surprise winner of last week’s auction for Manhattan’s iconic Flatiron Building generated another surprise on Friday: Jacob Garlick of DC-based Abraham Trust failed to deliver a 10% deposit to seal the deal.

On Wednesday, a court-ordered auction of the 22-story building at 175 Fifth Avenue was undertaken at the behest of three partners who owned 75% of the iconic building—Sorgente Group, GFP Real Estate and ABS Real Estate Partners—who wanted a divorce from the owner of the remaining 25%, Nathan Silverstein.

Garlick emerged with the winning bid of $190M after GFP bowed out at $189.5M. The terms of the deal required Abraham Trust to put down $19M by close of business on Friday, but this did not happen, according to a report in The Real Deal.

If Garlick isn’t given an extension by Mannion Auctions, which refereed the sale, GFP chief Jeffrey Gural will have the option to purchase the building. However, TRD reports that Gural said he does not intend to exercise this option—which means there may be another auction.

GFP was widely expected to emerge as the owner of the Flatiron Building in Wednesday’s partition sale, which was held in front of the New York County Courthouse, because owners are permitted to use their stakes as part of what is known as a “credit bid.”

The company bowed out after its bid of $189.5M, which it said it didn’t want to exceed because the 204K SF building needs a renovation expected to cost another $200M.

According to statements filed in court by the former owners, the falling-out began in 2017 after MacMillan Publishers, which occupied the entire building, said they would move out in 2019. The partners developed a business plan for the vacated building, but Silverstein—who, like each of the other owners, had a veto over the plans—refused to sign off.

According to the other partners, Silverstein wanted to replace McMillan without upgrading the 120-year-old structure, which because it only has one exit no longer meets NYC fire safety codes. The partners also said in court filings that Silverstein wanted to divide the property in five separate parcels, which can’t be done because the building is landmarked.

Silverstein alleged in his court filings that the partners were negotiating separately from him with prospective tenants on a lease priced at what he called “an extraordinarily low cost per square foot” and a term of nearly 50 years.

The partners initiated an $80M renovation of the Flatiron Building, but immediately began squabbling about the construction costs, eventually deciding it was time to separate.