Jeff Gural: Flatiron Building Bids Will Require $1M Deposits

“I’ve never seen anything like it.”

Jeff Gural, the 80-year-old patriarch of New York City’s Gural real estate clan, a.k.a. GFP Real Estate, has seen just about everything in the commercial real estate trade in Manhattan since the company opened for business in 1952.

But Jacob Garlick’s Houdini act after outbidding everyone else for the landmark Flatiron Building on the steps of the Court House on March 22—Garlick disappeared without putting down the 10% deposit on his $190M bid, let’s just say he left a big stink behind—was a wrinkle nobody saw coming.

Before we give you Jeff’s take on the auction that will live in infamy, we want to let everyone know—Spoiler Alert!—Jeff is still the owner of the 120-year-old Flatiron Building, he really likes the building and he wants to keep it (and convert it into condos).

Gural declined to exercise GFP’s option to buy the building for $189.5M, which was his last bid before he dropped out while Garlick was still holding up his wand at the auction with a big smile on his face (a photo Garlick posted on Twitter).

“We did not exercise our option. It’s possible there will be another auction if we’re unable to work out our differences with Nathan Silverstein,” Gural told GlobeSt. “So, basically, we’re back to square one, which was very disappointing.”

GFP is back to square one in its efforts to resolve its differences with Silverstein—but where the bidding will start in a second auction of the Flatiron Building is anybody’s guess, Gural said.

“It’s up to the auctioneer, he sets the rules, we don’t, so it’s possible he could start higher. I don’t know,” Gural told us.

”We want to ensure that we don’t have another fiasco,” he said. “People who want to bid have to put up a deposit of $1M, non-refundable, or show that they have the financial wherewithal to buy the building, so we don’t have to go through this again.”

We asked Gural if he was surprised Mannion Auctions, which ran the March 22 auction, didn’t check Garlick’s bonafides or ask for a deposit before the bidding started.

“Not really. It never came up. I don’t think anyone thought of it, to be honest,” Gural said “The assumption was that the people bidding would be legitimate bidders, and obviously that wasn’t the case.”

We asked him if anybody has been able to confirm Garlick’s CV—his web page says he “focuses on structuring investment” as “the founding partner” of DC-based Abraham Trust, but he’s not answering messages on LinkedIn.

“I couldn’t tell you. We know he exists because he was at the auction—we actually met with him the next day because he wanted to discuss a partnership. And that’s about it,” Gural told us. “We’ve had no further interaction, I don’t know of anyone in the press who has been able to reach him. So that’s hard to tell you.”

Gural indicated that Garlick’s inflated “winning” bid has the Flatiron Building’s partners looking at their original negotiations in a new light.

“All we wanted to do was buy Nathan’s interest. So, while we thought the price was way too high, we were only overpaying for 25% of the building, not 100% of the building,” Gural said.

GFP’s 55-building portfolio primarily is made up of aging Manhattan office buildings, including a building dating back to 1931 at 515 Madison Avenue—the DuMont Building—with a loan that went into special servicing (after anchor tenant Sloan Kettering moved out) before Gural negotiated a three-year loan extension.

Gural bought out the only other CMBS loan backed by a GFP building, also on Madison Avenue. Jeff has been busy shoring up the company’s balance sheet by making sure the company’s eclectic mix of converted factories in “funky” locations like Soho and Tribeca are full of office tenants.

“[Our office occupancy] is in the high 90s when you average it out. I work very hard at it. This is the hardest I’ve ever worked in my life, and I’m 80 years old,” Gural said.

“We’re fortunate because the majority of the buildings we own are old industrial buildings in funky neighborhoods, like in Soho, they’re 100% full, another building at Hudson and Varick, 98% leased, a building in Tribeca is almost 100% leased,” he said.

If it sounds like this CRE veteran is battening down the hatches for an unfolding reckoning in Manhattan’s office market as a tidal wave of CMBS loans come due—with banks refusing to refinance properties—here’s Gural’s take on how rocky the next two years will be in Manhattan’s office market:

That’s right, the man said two years.

“I don’t see anything good happening in the next two years. To be honest, I think it’s going to be rough,” he said. “We’ll see a lot of distressed assets in [Manhattan]. We’re going to separate the men from the boys, which has always been the case in New York City.”

“The next two years are going to be tough because you’re going to see people whose loans come due and they’re not going to be able to refinance. People who were buying high and assuming interest rates would never get higher than 3% or 4%,” Gural said. “So, they’re either going to have to give the keys back to the bank or sell it at a loss or who knows what?”

How much office building valuations plunge will be decided on a building-by-building basis, Gural said. “Valuations depend on the building. If someone owns a building that’s half empty, you could easily see a decline of 40%,” he said.

Gural told us GFP had a significant amount of exposure to Signature, the failed regional bank headquartered on Fifth Avenue. He confirmed that the loss of Signature has created a large void in the CRE financing ecosystem in Manhattan.

“They were a big bank of ours. For people like ourselves, losing Signature is a big problem—because they were a terrific bank, we did a lot of business with them,” he said. “They were a good real estate bank and they were a good relationship bank—they lent people money based on their relationship. We did lot of business with them.”

We asked Gural if he remains concerned about other regional banks. “I think the real problem will be in the CMBS area. CMBS took bigger risks than banks typically, so CMBS is where you’re going to see the biggest stress,” he said.

“The banks will end up getting the keys and selling the buildings to somebody else. If they take a loss, they take a loss,” Gural said. “The banks were supposed to be lending at 50% to 60% [leveraged] loans. If they did 75% or 80%, they’re going to be in trouble.”

GFP keeps a ticker on its home page counting the amount of discount office space the company provides to non-profits in NYC. The tally is 3M SF and counting.