A VC bought the Flatiron Building and didn’t pay for it | Hacker News Reader

A VC bought the Flatiron Building and didn’t pay for it

hellgatenyc.com

167 pointslaurex54 comments

> ...venture fund managing partner Jacob Garlick... placed a $190 million bid on the historic Flatiron Building...

> ...you'd think the building would go to the second-highest bidder—but, dear reader, think again, because that guy doesn't even want the building. "I was kind of shocked, to tell you the truth," that bidder, former Flatiron co-owner Jeff Gural, told NY1 after Garlick outbid him. "I never thought someone would bid so much for the building. It's a beautiful building, but it needs $100 million of upgrades, it's basically empty."

Never thought someone would bid $190 mil? OK, so how much did this second-highest bidder bid then? Well:

> But if an extension is not granted, the second-highest bidder in the auction, a group led by GFP Real Estate’s Jeffrey Gural, will have the option to purchase the property at their last bid of $189.5 million, according to a court filing. [1]

About 0.3% less? ...Why is he shocked somebody else would pay basically the same amount he himself bid? I am so confused.

But it seems they've both changed their minds so no harm no foul...?

Is there any kind of penalty though for bidding at an auction and not following through on the deposit?

[1] https://therealdeal.com/new-york/2023/03/24/garlick-fails-to...

> About 0.3% less? ...Why is he shocked somebody else would pay basically the same amount he himself bid? I am so confused.

Mr. Gural's bid is complicated, because he's already 75% owner of the building; he's really bidding that he'd rather spend $47.5M for the other 25% of the building, than accept $142.5M for his part.

But if Mr. Garlick isn't following through on the bid, it's not surprising that Mr. Gural would rather reauction. He doesn't expect anyone to bid much for the property, and he'd rather spend less to get the other 25%.

Thank you for clarifying - that was definitely the context I was missing. Makes much more sense now.

Plus, given that the auction was about getting rid of the increasingly weird 25% equity holder, it’s not a far stretch to assume that the minority guy just rigged the auction with „who do I know who I could talk into starting a fake bidding war“, and thus even less appetite among the majority to just pick up the tab for that stunt.

The dynamics of the offer and potential reauction are interesting.

Since the top bidder was essentially going to pay the 2nd bidders highest price (we can’t know what the top bidders price would have been), it’s very strange that they tried to extend an offer to purchase at the 2nd bidders highest price. I would have expected them to extend at the first increment above the 3rd highest bid, as this would have been the result without the first bidder. (And then presumably they could sue the highest bidder for the difference in damages.)

Doing a reauction will be strange, and it creates a weird kind of arbitrage opportunity. Why would other (legitimate) bidders show up when they already know Mr Gural’s bid will be higher? Perhaps there will be only spiteful bids from competitors to ensure that he doesn’t get a deal. Perhaps it doesn’t matter, as they would presumably be able to sue for damages for any difference here as well.

The title here is editorialized (maybe by the moderators, because the original, "Some guy" bought the building, is baity). But it's probably worth saying that he doesn't seem like a VC in the sense we think about; he manages a multi-family office that does PE and venture and isn't tech-focused. "An investor" would be maybe a better description.

VC doesn’t have to be tech.

No, it doesn't, but subtextually on HN a reference to VC implies that. Either way: it's not the title.

A landmark skyscraper held as a tenancy-in-common, a forced partition sale, a rouge bidder, ... some lawyers are having a field day with this.

I was curious about the tenancy-in-common issue. This article [1] provides a nice overview.

1: https://therealdeal.com/new-york/2023/03/28/the-trouble-with...

They're relatively common in SF, and increasingly common in LA for 4-5 unit apartment->ownership conversions. While they're weird for owners, they're attractive for small-time developers. Conversion to actual condo ownership is subject to regulation, and pretty tightly controlled by the city, but conversion to TiC requires basically no approval for builds with few (~5) units.

They're pretty attractively priced too, since they can be done so quickly, and because owning a 1/4 undivided share of 4 apartments, with exclusive use of one apartment guaranteed only by the strength of whatever contract a small-time developer can get drawn up requires some ... convincing

it's always the rouge bidders that do it dirty!

always favor the cerulean bidders!!

bring me the BLUE pages!

They bid until they are red in the face.

Damnit that's what I get for typing quickly

Cerulean blue is like a gentle breeze.

I didn't realize the Flatiron Building was vacant and apparently in shambles. This guy bought it for 190 mil but from the article it requires another 100 mil to be renovated.

I worked in that building about 10 years ago and old copper pipes running water were directly above server racks. The corner offices facing the park were nice, but everything else was significantly worse than any other building I’ve worked in because of age, low ceilings, etc. I would guess 100 mil is a low estimate.

If you like triangular buildings, the original Apple HQ was:

5300 Stevens Creek Blvd

San Jose, CA 95129

Until around the early 1990's, it had the multicolored Apple II logo on the side facing I-280.

Accolade with Peter Harris was a tenant at one point.

I hate that intersection. I regularly find myself on Lawrence headed north and need to get to 280 north and it's not pretty.

First I have to get to the right side, but not all the way to the right or it will throw me to 280 south. So second from the right, but immediately after passing the 280s onramp I need to get more to the right where I get off Lawrence and find myself at a red light with 3 left turn lanes but the rightmost of those is already packed up with cars coming off 280n so usually I'm in the second from the left lane. During that left turn I have an eye on getting over to the right because I need to be in the far right lane on Stevens Creek to even be in position to cross the green bike lane into the actual lane that gets me to 280n. That lane is usually already filled with cars coming off Lawrence south and there's a light in the middle of it so I'm trying to merge into standing traffic. Or else waiting at the light and trying to make the short merge after the light.

By far the most stressful bit of southbay driving I ever encounter.

I don't think that was the original Apple HQ, I think it was just one of many buildings that Apple occupied around Cupertino in the '80s.

Original Apple HQ was on Bandley in Cupertino.

(Semi-related trivia: Bioware's office in Austin is a copy of Apple Infinite Loop.)

I'm curious what the floorplan was like?

https://therealdeal.com/new-york/2023/03/24/meet-the-mysteri...

The absurdity of this is off the charts. Someone can just raise one of those ping-pong paddle things, name a price, and win? Don't you at least have to put down a deposit of some kind to participate?

"motivated sellers"

It is manifestation. If he acts like he owns the building and has a positive mental visualization of it, he'll manage to find some way of paying for it.

Usually auctions have some sort of deposit requirements, but where large companies are involved it's sometimes just "show us that you have at least $X in the bank" (cash or treasuries or similar) on the theory that they can be sued for specific performance if they don't pay up.

If you are fond of triangular shaped buildings the G.A.R. building in Detroit sold in 2011 for only $220,000. After rehabilitation it sold for considerably more recently.

https://www.freep.com/story/money/business/michigan/2023/02/...

They could have John Wick stay there...

The Continental, the fictional hotel where John Wick stays, is Delmonico's downtown.

https://en.wikipedia.org/wiki/56_Beaver_Street

Edit - it's actually another building used for exterior shots, although Delmonico's was used for some interior shots.

Ah. I always thought it was the Flatiron.

It's the very similar-looking Beaver Building/Cocoa exchange: https://en.m.wikipedia.org/wiki/1_Wall_Street_Court

Once he's done with it it will require even more extensive renovation, though.

Why? no business is to be conducted there, so it should be okay

In theory, but it did seem like a fair amount of business was conducted there...

But that's only been over a couple of nights. How long had the hotel been running before the dog was killed? Over the course of time, it probably has a 99.999% uptime

Well sure but we also don't know how frequently business was being conducted in the Continental. It certainly happened often enough to where they have a direct protocol on what to do when business is being conducted there.

Or just rent it to The Boys.

Just visited Flatiron building a few days ago. There’s scaffolding covering the front and sides, are those renovations being done by the existing owner?

It was supposed to be renovated and converted to a hotel, but there was some sort of squabble between the co-owners and it was left half gutted. It was auctioned off then as a dispute resolution.

Hotel definitely sounds like the ideal use for it.

Getting to stay in an iconic building? And getting to brag about snagging a skinny triangle room? And the location on Madison Square Park is ideal.

Definitely hope it winds up that way. I could totally imagine Ace Hotel buying and running it if they didn't already have a location just a few blocks north. There's got to be another boutique urban hotel brand though?

When it comes to this kind of property, hotel brands like Ace are usually operators, not owners. VC is a thing in hospitality real estate too, and this is what a lot of real estate VC funds do. They'll buy a distressed property or location with potential and flip it into a hotel, and then pick an operator. If the property is successful, they'll eventually get an exit when they sell it to a larger, lower-risk cash-flow oriented real estate fund and pocket a profit.

As for "boutique" urban hotel brands, I think it's a fad lately, even within the major hospitality groups - the Hilton Curio and Marriott Autograph sub-brands specialize in these kinds of things, and Westin / W used to operate a lot of these kinds of properties too.

Do you recall whether the scaffolding went all the way up? My understanding is lots of NYC buildings have 1 level of scaffolding about the sidewalk as there is a law requiring regular checks against bits of the facade falling off and the scaffolding is a "temporary" alternative that allows them to avoid that expense.

The first episode of the series How To With John Wilson is about NYC scaffolding - highly recommended.

Right now it is full on scaffolding. Not the green stuff that is everywhere in the city. It covers the whole building, you can barely see the sides.

I had always just assumed there was no such thing as a scaffolding warehouse and scaffolding just stayed where it was until it was needed elsewhere.

Wow, so that's why there is ugly scaffolding on so many buildings in NYC...

Sounds like what VCs do most of the time. I've seen countless term sheets signed and never paid.

"Conspiracy to commit fraud: the defendant devised a scheme in which the defendant repeatedly made promises of payment, which he had no intention to uphold, in order to obtain common shares in various corporations"

Make it wire fraud if they used signed PDFs sent over email.

I wish, though I feel like it would backfire on the founders since the VCs talk to each other behind founders' backs.

Also some of these VCs weren't US-based, so enforcement would be difficult.

I was being a little excessive. After all it should be clear that they won't get the shares without paying up. Or so I'd hope.

Yes, of course, they don't get any shares. That's the issue with these term sheets, if you read the legalese, they don't say the VC must wire funds, it just says that in exchange for funds they get whatever stock or convertible debt or rights or whatever. If they don't wire, they don't get those things and the contract is then void.

It doesn't say that they must wire funds, or at least, this isn't legally enforceable.

The real problem is I'd really rather get a fast, hard rejection than handshaking and making space in a round for a VC only to have them drop out last minute and then having to scramble to get the void filled, and this whole situation leading to other VCs dropping out like dominoes because now "ooh something looks fishy".

But Multi-Millionaires need to actually pay for things like real estate and taxes? Is it not enough an honor for something to be owned by the princely class?

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